UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08709
Western Asset High Income Fund II Inc.
(Exact name of registrant as specified in charter)
620 Eighth Avenue, 47th Floor, New York, NY 10018
(Address of principal executive offices) (Zip code)
George P. Hoyt.
Franklin Templeton
100 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrants telephone number, including area code: (888) 777-0102
Date of fiscal year end: April 30
Date of reporting period: October 31, 2021
ITEM 1. |
REPORT TO STOCKHOLDERS. |
The Semi-Annual Report to Stockholders is filed herewith.
Semi-Annual Report | October 31, 2021 |
WESTERN ASSET
HIGH INCOME FUND II INC. (HIX)
The Fund intends to no longer mail paper copies of the Funds shareholder reports like this one, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary (such as a broker-dealer or bank). Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you invest through a financial intermediary and you already elected to receive shareholder reports electronically (e-delivery), you will not be affected by this change and you need not take any action. If you have not already elected e-delivery, you may elect to receive shareholder reports and other communications from the Fund electronically by contacting your financial intermediary.
You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. That election will apply to all Legg Mason Funds held in your account at that financial intermediary. If you are a direct shareholder with the Fund, you can call the Fund at 1-888-888-0151, or write to the Fund by regular mail at P.O. Box 505000, Louisville, KY 40233 or by overnight delivery to Computershare, 462 South 4th Street, Suite 1600, Louisville, KY 40202 to let the Fund know you wish to continue receiving paper copies of your shareholder reports. That election will apply to all Legg Mason Funds held in your account held directly with the fund complex.
INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE |
Fund objectives
The Fund seeks to maximize current income. As a secondary objective, the Fund seeks capital appreciation to the extent consistent with its objective of seeking to maximize current income.
Under normal market conditions, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in high-yield debt securities. In addition, the Fund may invest up to 35% of its total assets in debt securities of issuers located in emerging market countries.
II | Western Asset High Income Fund II Inc. |
Dear Shareholder,
We are pleased to provide the semi-annual report of Western Asset High Income Fund II Inc. for the six-month reporting period ended October 31, 2021. Please read on for Fund performance information during the Funds reporting period.
As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.franklintempleton.com.Here you can gain immediate access to market and investment information, including:
|
Fund prices and performance, |
|
Market insights and commentaries from our portfolio managers, and |
|
A host of educational resources. |
We look forward to helping you meet your financial goals.
Sincerely,
Jane Trust, CFA
Chairman, President and Chief Executive Officer
November 30, 2021
Western Asset High Income Fund II Inc. | III |
For the six months ended October 31, 2021, Western Asset High Income Fund II Inc. returned 2.16% based on its net asset value (NAV)i and 6.83% based on its New York Stock Exchange (NYSE) market price per share. The Funds unmanaged benchmarks, the Bloomberg U.S. Corporate High Yield 2% Issuer Cap Indexii and the JPMorgan Emerging Markets Bond Index Globaliii, returned 2.36% and 1.50%, respectively, for the same period. The Lipper High Yield (Leveraged) Closed-End Funds Category Averageiv returned 2.86% over the same time frame. Please note that Lipper performance returns are based on each funds NAV.
During this six-month period, the Fund made distributions to shareholders totaling $0.29 per share. As of October 31, 2021, the Fund estimates that 93% of the distributions were sourced from net investment income and 7% constituted a return of capital.* The performance table shows the Funds six-month total return based on its NAV and market price as of October 31, 2021. Past performance is no guarantee of future results.
Performance Snapshot as of October 31, 2021
(unaudited) |
||||
Price Per Share |
6-Month
Total Return** |
|||
$ 7.01 (NAV) | 2.16 | % | ||
$ 7.27 (Market Price) | 6.83 | % |
All figures represent past performance and are not a guarantee of future results. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.
** Total returns are based on changes in NAV or market price, respectively. Returns reflect the deduction of all Fund expenses, including management fees, operating expenses, and other Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that investors may pay on distributions or the sale of shares.
Total return assumes the reinvestment of all distributions, including returns of capital, if any, at NAV.
Total return assumes the reinvestment of all distributions, including returns of capital, if any, in additional shares in accordance with the Funds Dividend Reinvestment Plan.
Looking for additional information?
The Fund is traded under the symbol HIX and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available online under the symbol XHGIX on most financial websites. Barrons and The Wall Street Journals Monday edition both carry closed-end fund tables that provide additional information. In addition, the Fund issues a quarterly press release that can be found on most major financial websites as well as www.franklintempleton.com.
* |
These estimates are not for tax purposes. The Fund will issue a Form 1099 with final composition of the distributions for tax purposes after year-end. A return of capital is not taxable and results in a reduction in the tax basis of a shareholders investment. For more information about a distributions composition, please refer to the Funds distribution press release or, if applicable, the Section 19 notice located in the press release section of our website, www.franklintempleton.com. |
IV | Western Asset High Income Fund II Inc. |
In a continuing effort to provide information concerning the Fund, shareholders may call 1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern time, for the Funds current NAV, market price and other information.
Thank you for your investment in Western Asset High Income Fund II Inc. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Funds investment goals.
Sincerely,
Jane Trust, CFA
Chairman, President and Chief Executive Officer
November 30, 2021
RISKS: The Fund is a diversified closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the Fund will achieve its investment objective. The Funds common stock is traded on the New York Stock Exchange. Similar to stocks, the Funds share price will fluctuate with market conditions and, at the time of sale, may be worth more or less than the original investment. Shares of closed-end funds often trade at a discount to their net asset value. Diversification does not assure against market loss. The Funds investments are subject to a number of risks, such as credit risk, inflation risk and interest rate risk. As interest rates rise, bond prices fall, reducing the value of the Funds holdings. The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. High-yield bonds, known as junk bonds, involve greater credit and liquidity risks than investment grade bonds. Foreign securities are subject to certain risks not associated with domestic investing, such as currency fluctuations and changes in political and economic conditions which could result in significant fluctuations. These risks are magnified in emerging markets. Emerging market countries tend to have economic, political and legal systems that are less developed and are less stable than those of more developed countries. The Fund is also permitted purchases of equity securities. Equity securities generally have greater price volatility than fixed income securities. Leverage may result in greater volatility of NAV and the market price of common shares and increases a shareholders risk of loss. The Fund may also invest in money market funds, including funds affiliated with the Funds manager and subadviser.
All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
Western Asset High Income Fund II Inc. | V |
Performance review (contd)
i |
Net asset value (NAV) is calculated by subtracting total liabilities, including liabilities associated with financial leverage (if any), from the closing value of all securities held by the Fund (plus all other assets) and dividing the result (total net assets) by the total number of the common shares outstanding. The NAV fluctuates with changes in the market prices of securities in which the Fund has invested. However, the price at which an investor may buy or sell shares of the Fund is the Funds market price as determined by supply of and demand for the Funds shares. |
ii |
The Bloomberg U.S. Corporate High Yield 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Bloomberg U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market. |
iii |
The JPMorgan Emerging Markets Bond Index Global tracks total returns for U.S. dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds and local market instruments. |
iv |
Lipper, Inc., a wholly-owned subsidiary of Refinitiv, provides independent insight on global collective investments. Returns are based on the six-month period ended October 31, 2021, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 39 funds in the Funds Lipper category. |
VI | Western Asset High Income Fund II Inc. |
Investment breakdown (%) as a percent of total investments
|
The bar graph above represents the composition of the Funds investments as of October 31, 2021 and April 30, 2021 and does not include derivatives, such as future contracts and forward foreign currency contracts. The Fund is actively managed. As a result, the composition of the Funds investments is subject to change at any time. |
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 1 |
Schedule of investments (unaudited)
October 31, 2021
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Corporate Bonds & Notes 122.5% |
|
|||||||||||||||
Communication Services 21.0% |
|
|||||||||||||||
Diversified Telecommunication Services 3.7% |
|
|||||||||||||||
Altice France Holding SA, Senior Notes |
6.000 | % | 2/15/28 | 3,280,000 | $ | 3,121,494 | (a) | |||||||||
Altice France Holding SA, Senior Secured Notes |
10.500 | % | 5/15/27 | 1,240,000 | 1,345,400 | (a)(b) | ||||||||||
Altice France SA, Senior Secured Notes |
8.125 | % | 2/1/27 | 2,530,000 | 2,722,912 | (a)(b) | ||||||||||
Altice France SA, Senior Secured Notes |
5.500 | % | 10/15/29 | 1,500,000 | 1,472,205 | (a) | ||||||||||
Cogent Communications Group Inc., Senior Secured Notes |
5.375 | % | 3/1/22 | 622,000 | 625,110 | (a)(b) | ||||||||||
Intelsat Jackson Holdings SA, Senior Secured Notes |
8.000 | % | 2/15/24 | 2,660,000 | 2,723,175 | (a)(b) | ||||||||||
Telecom Italia Capital SA, Senior Notes |
6.000 | % | 9/30/34 | 2,660,000 | 2,963,014 | |||||||||||
Telecom Italia SpA, Senior Notes |
5.303 | % | 5/30/24 | 410,000 | 437,163 | (a)(b) | ||||||||||
Total Diversified Telecommunication Services |
|
15,410,473 | ||||||||||||||
Entertainment 0.8% |
|
|||||||||||||||
Netflix Inc., Senior Notes |
5.875 | % | 11/15/28 | 1,545,000 | 1,882,552 | (b) | ||||||||||
Netflix Inc., Senior Notes |
6.375 | % | 5/15/29 | 1,305,000 | 1,647,562 | (b) | ||||||||||
Total Entertainment |
3,530,114 | |||||||||||||||
Interactive Media & Services 0.5% |
|
|||||||||||||||
Match Group Holdings II LLC, Senior Notes |
3.625 | % | 10/1/31 | 2,050,000 | 1,992,580 | (a) | ||||||||||
Media 11.6% |
|
|||||||||||||||
CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes |
5.125 | % | 5/1/27 | 4,850,000 | 5,031,875 | (a)(b) | ||||||||||
CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes |
5.000 | % | 2/1/28 | 6,010,000 | 6,257,913 | (a)(b) | ||||||||||
CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes |
4.500 | % | 8/15/30 | 5,105,000 | 5,202,659 | (a)(b) | ||||||||||
CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes |
4.500 | % | 5/1/32 | 2,190,000 | 2,203,151 | |||||||||||
Clear Channel Outdoor Holdings Inc., Senior Notes |
7.500 | % | 6/1/29 | 1,380,000 | 1,413,644 | (a) | ||||||||||
DIRECTV Holdings LLC/DIRECTV Financing Co. Inc., Senior Secured Notes |
5.875 | % | 8/15/27 | 1,780,000 | 1,847,462 | (a) | ||||||||||
DISH DBS Corp., Senior Notes |
5.875 | % | 11/15/24 | 5,780,000 | 6,162,925 | (b) |
See Notes to Financial Statements.
2 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Media continued |
||||||||||||||||
DISH DBS Corp., Senior Notes |
7.750 | % | 7/1/26 | 11,459,000 | $ | 12,748,137 | (b) | |||||||||
DISH DBS Corp., Senior Notes |
5.125 | % | 6/1/29 | 1,180,000 | 1,137,225 | |||||||||||
Univision Communications Inc., Senior Secured Notes |
9.500 | % | 5/1/25 | 2,490,000 | 2,698,538 | (a) | ||||||||||
UPC Holding BV, Senior Secured Notes |
5.500 | % | 1/15/28 | 2,505,000 | 2,595,806 | (a)(b) | ||||||||||
Virgin Media Secured Finance PLC, Senior Secured Notes |
5.500 | % | 5/15/29 | 500,000 | 528,205 | (a) | ||||||||||
Total Media |
47,827,540 | |||||||||||||||
Wireless Telecommunication Services 4.4% |
|
|||||||||||||||
CSC Holdings LLC, Senior Notes |
6.500 | % | 2/1/29 | 610,000 | 654,988 | (a) | ||||||||||
Sprint Capital Corp., Senior Notes |
6.875 | % | 11/15/28 | 2,200,000 | 2,784,518 | (b) | ||||||||||
Sprint Capital Corp., Senior Notes |
8.750 | % | 3/15/32 | 5,170,000 | 7,744,660 | (b) | ||||||||||
Sprint Communications Inc., Senior Notes |
11.500 | % | 11/15/21 | 4,285,000 | 4,305,782 | (b) | ||||||||||
Sprint Corp., Senior Notes |
7.875 | % | 9/15/23 | 110,000 | 122,100 | (b) | ||||||||||
VEON Holdings BV, Senior Notes |
7.504 | % | 3/1/22 | 1,620,000 | 1,652,732 | (c) | ||||||||||
VEON Holdings BV, Senior Notes |
7.504 | % | 3/1/22 | 700,000 | 714,143 | (a)(b) | ||||||||||
Total Wireless Telecommunication Services |
17,978,923 | |||||||||||||||
Total Communication Services |
86,739,630 | |||||||||||||||
Consumer Discretionary 21.7% | ||||||||||||||||
Auto Components 3.5% |
||||||||||||||||
Adient Global Holdings Ltd., Senior Notes |
4.875 | % | 8/15/26 | 2,143,000 | 2,184,435 | (a)(b) | ||||||||||
Adient US LLC, Senior Secured Notes |
9.000 | % | 4/15/25 | 2,410,000 | 2,581,713 | (a) | ||||||||||
American Axle & Manufacturing Inc., Senior Notes |
6.500 | % | 4/1/27 | 4,271,000 | 4,463,195 | (b) | ||||||||||
American Axle & Manufacturing Inc., Senior Notes |
5.000 | % | 10/1/29 | 2,530,000 | 2,422,204 | |||||||||||
JB Poindexter & Co. Inc., Senior Notes |
7.125 | % | 4/15/26 | 2,740,000 | 2,883,850 | (a)(b) | ||||||||||
Total Auto Components |
14,535,397 | |||||||||||||||
Automobiles 1.8% |
||||||||||||||||
Ford Motor Co., Senior Notes |
9.000 | % | 4/22/25 | 2,980,000 | 3,587,175 | |||||||||||
Ford Motor Credit Co. LLC, Senior Notes |
4.250 | % | 9/20/22 | 1,300,000 | 1,331,278 |
See Notes to Financial Statements.
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 3 |
Schedule of investments (unaudited) (contd)
October 31, 2021
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Automobiles continued |
||||||||||||||||
Ford Motor Credit Co. LLC, Senior Notes |
2.900 | % | 2/16/28 | 1,900,000 | $ | 1,885,807 | ||||||||||
General Motors Co., Senior Notes |
6.125 | % | 10/1/25 | 460,000 | 534,069 | |||||||||||
Total Automobiles |
7,338,329 | |||||||||||||||
Diversified Consumer Services 1.8% |
||||||||||||||||
Carriage Services Inc., Senior Notes |
4.250 | % | 5/15/29 | 1,130,000 | 1,133,390 | (a) | ||||||||||
Service Corp. International, Senior Notes |
7.500 | % | 4/1/27 | 2,090,000 | 2,542,046 | (b) | ||||||||||
StoneMor Inc., Senior Secured Notes |
8.500 | % | 5/15/29 | 3,650,000 | 3,776,892 | (a) | ||||||||||
Total Diversified Consumer Services |
7,452,328 | |||||||||||||||
Hotels, Restaurants & Leisure 12.8% |
||||||||||||||||
Carnival Corp., Senior Notes |
7.625 | % | 3/1/26 | 780,000 | 822,775 | (a) | ||||||||||
Carnival Corp., Senior Notes |
5.750 | % | 3/1/27 | 2,080,000 | 2,119,000 | (a)(b) | ||||||||||
Carnival Corp., Senior Notes |
6.000 | % | 5/1/29 | 3,230,000 | 3,234,037 | (a)(d) | ||||||||||
Carnival PLC, Senior Notes |
1.000 | % | 10/28/29 | 2,000,000 | EUR | 1,813,057 | ||||||||||
Carrols Restaurant Group Inc., Senior Notes |
5.875 | % | 7/1/29 | 2,770,000 | 2,539,162 | (a) | ||||||||||
Full House Resorts Inc., Senior Secured Notes |
8.250 | % | 2/15/28 | 1,000,000 | 1,059,055 | (a) | ||||||||||
IRB Holding Corp., Senior Secured Notes |
7.000 | % | 6/15/25 | 1,480,000 | 1,565,100 | (a) | ||||||||||
NCL Corp. Ltd., Senior Secured Notes |
12.250 | % | 5/15/24 | 3,180,000 | 3,755,198 | (a) | ||||||||||
NCL Corp. Ltd., Senior Secured Notes |
10.250 | % | 2/1/26 | 2,920,000 | 3,358,146 | (a)(b) | ||||||||||
Royal Caribbean Cruises Ltd., Senior Notes |
5.500 | % | 8/31/26 | 1,810,000 | 1,846,200 | (a) | ||||||||||
Royal Caribbean Cruises Ltd., Senior Notes |
5.500 | % | 4/1/28 | 2,190,000 | 2,231,063 | (a) | ||||||||||
Saga PLC, Senior Notes |
3.375 | % | 5/12/24 | 2,205,000 | GBP | 2,904,717 | (c) | |||||||||
Sands China Ltd., Senior Notes |
3.250 | % | 8/8/31 | 2,900,000 | 2,722,607 | (a) | ||||||||||
Viking Cruises Ltd., Senior Notes |
5.875 | % | 9/15/27 | 3,300,000 | 3,194,614 | (a)(b) | ||||||||||
Viking Cruises Ltd., Senior Notes |
7.000 | % | 2/15/29 | 2,060,000 | 2,073,668 | (a) | ||||||||||
VOC Escrow Ltd., Senior Secured Notes |
5.000 | % | 2/15/28 | 1,490,000 | 1,480,688 | (a)(b) | ||||||||||
Wheel Bidco Ltd., Senior Secured Notes |
6.750 | % | 7/15/26 | 3,730,000 | GBP | 5,005,574 | (a) | |||||||||
Wynn Macau Ltd., Senior Notes |
4.875 | % | 10/1/24 | 2,100,000 | 1,988,511 | (a) | ||||||||||
Wynn Macau Ltd., Senior Notes |
5.500 | % | 1/15/26 | 500,000 | 470,945 | (a) |
See Notes to Financial Statements.
4 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Hotels, Restaurants & Leisure continued |
||||||||||||||||
Wynn Macau Ltd., Senior Notes |
5.500 | % | 10/1/27 | 1,640,000 | $ | 1,529,300 | (a) | |||||||||
Wynn Macau Ltd., Senior Notes |
5.625 | % | 8/26/28 | 2,240,000 | 2,095,139 | (a) | ||||||||||
Wynn Macau Ltd., Senior Notes |
5.125 | % | 12/15/29 | 700,000 | 632,051 | (a) | ||||||||||
Wynn Resorts Finance LLC/Wynn Resorts Capital Corp., Senior Notes |
7.750 | % | 4/15/25 | 3,440,000 | 3,624,212 | (a) | ||||||||||
Yum! Brands Inc., Senior Notes |
7.750 | % | 4/1/25 | 780,000 | 830,466 | (a) | ||||||||||
Total Hotels, Restaurants & Leisure |
52,895,285 | |||||||||||||||
Internet & Direct Marketing Retail 0.5% |
||||||||||||||||
MercadoLibre Inc., Senior Notes |
3.125 | % | 1/14/31 | 2,000,000 | 1,890,100 | |||||||||||
Specialty Retail 1.2% |
||||||||||||||||
Michaels Cos. Inc., Senior Notes |
7.875 | % | 5/1/29 | 1,570,000 | 1,588,039 | (a) | ||||||||||
Michaels Cos. Inc., Senior Secured Notes |
5.250 | % | 5/1/28 | 570,000 | 576,441 | (a) | ||||||||||
Party City Holdings Inc., Senior Secured Notes |
8.750 | % | 2/15/26 | 1,190,000 | 1,218,661 | (a)(b) | ||||||||||
Sally Holdings LLC/Sally Capital Inc., Senior Notes |
5.625 | % | 12/1/25 | 1,460,000 | 1,491,025 | (b) | ||||||||||
Total Specialty Retail |
4,874,166 | |||||||||||||||
Textiles, Apparel & Luxury Goods 0.1% |
||||||||||||||||
Hanesbrands Inc., Senior Notes |
4.875 | % | 5/15/26 | 450,000 | 481,606 | (a)(b) | ||||||||||
Total Consumer Discretionary |
89,467,211 | |||||||||||||||
Consumer Staples 2.3% | ||||||||||||||||
Food Products 2.0% |
||||||||||||||||
Kraft Heinz Foods Co., Senior Notes |
4.625 | % | 1/30/29 | 3,500,000 | 3,983,685 | (b) | ||||||||||
Kraft Heinz Foods Co., Senior Notes |
5.000 | % | 7/15/35 | 670,000 | 824,481 | |||||||||||
Kraft Heinz Foods Co., Senior Notes |
5.000 | % | 6/4/42 | 160,000 | 198,052 | (b) | ||||||||||
Kraft Heinz Foods Co., Senior Notes |
4.375 | % | 6/1/46 | 700,000 | 818,327 | |||||||||||
Pilgrims Pride Corp., Senior Notes |
5.875 | % | 9/30/27 | 2,245,000 | 2,370,013 | (a)(b) | ||||||||||
Total Food Products |
8,194,558 | |||||||||||||||
Household Products 0.3% |
||||||||||||||||
Spectrum Brands Inc., Senior Notes |
5.750 | % | 7/15/25 | 1,330,000 | 1,361,587 | (b) | ||||||||||
Total Consumer Staples |
9,556,145 | |||||||||||||||
Energy 26.8% | ||||||||||||||||
Energy Equipment & Services 0.4% |
||||||||||||||||
Sunnova Energy Corp., Senior Notes |
5.875 | % | 9/1/26 | 1,470,000 | 1,493,888 | (a) | ||||||||||
Oil, Gas & Consumable Fuels 26.4% |
||||||||||||||||
Apache Corp., Senior Notes |
5.100 | % | 9/1/40 | 1,800,000 | 2,019,537 | |||||||||||
Blue Racer Midstream LLC/Blue Racer Finance Corp., Senior Notes |
7.625 | % | 12/15/25 | 190,000 | 204,488 | (a)(b) |
See Notes to Financial Statements.
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 5 |
Schedule of investments (unaudited) (contd)
October 31, 2021
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Oil, Gas & Consumable Fuels continued |
||||||||||||||||
Continental Resources Inc., Senior Notes |
3.800 | % | 6/1/24 | 330,000 | $ | 346,913 | (b) | |||||||||
Continental Resources Inc., Senior Notes |
4.375 | % | 1/15/28 | 240,000 | 262,200 | (b) | ||||||||||
Continental Resources Inc., Senior Notes |
4.900 | % | 6/1/44 | 1,320,000 | 1,499,619 | (b) | ||||||||||
Ecopetrol SA, Senior Notes |
6.875 | % | 4/29/30 | 1,270,000 | 1,468,641 | |||||||||||
Ecopetrol SA, Senior Notes |
4.625 | % | 11/2/31 | 3,140,000 | 3,120,830 | (d) | ||||||||||
Ecopetrol SA, Senior Notes |
5.875 | % | 5/28/45 | 2,500,000 | 2,534,875 | (b) | ||||||||||
Energy Transfer LP, Junior Subordinated Notes (6.500% to 11/15/26 then 5 year Treasury Constant Maturity Rate +5.694%) |
6.500 | % | 11/15/26 | 510,000 | 529,125 | (e)(f) | ||||||||||
Energy Transfer LP, Junior Subordinated Notes (6.625% to 2/15/28 then 3 mo. USD LIBOR + 4.155%) |
6.625 | % | 2/15/28 | 3,571,000 | 3,472,797 | (e)(f) | ||||||||||
Energy Transfer LP, Junior Subordinated Notes (6.750% to 5/15/25 then 5 year Treasury Constant Maturity Rate +5.134%) |
6.750 | % | 5/15/25 | 2,720,000 | 2,798,200 | (e)(f) | ||||||||||
Energy Transfer LP, Junior Subordinated Notes (7.125% to 5/15/30 then 5 year Treasury Constant Maturity Rate +5.306%) |
7.125 | % | 5/15/30 | 3,310,000 | 3,471,362 | (e)(f) | ||||||||||
EQM Midstream Partners LP, Senior Notes |
6.500 | % | 7/1/27 | 770,000 | 857,634 | (a) | ||||||||||
EQT Corp., Senior Notes |
3.900 | % | 10/1/27 | 1,750,000 | 1,870,312 | (b) | ||||||||||
EQT Corp., Senior Notes |
7.500 | % | 2/1/30 | 2,320,000 | 2,972,964 | |||||||||||
Kinder Morgan Inc., Senior Notes |
7.750 | % | 1/15/32 | 1,950,000 | 2,767,840 | (b) | ||||||||||
MEG Energy Corp., Secured Notes |
6.500 | % | 1/15/25 | 272,000 | 278,800 | (a)(b) | ||||||||||
NGPL PipeCo LLC, Senior Notes |
7.768 | % | 12/15/37 | 1,900,000 | 2,734,352 | (a)(b) | ||||||||||
Oasis Petroleum Inc., Senior Notes |
6.375 | % | 6/1/26 | 2,320,000 | 2,456,300 | (a) | ||||||||||
Occidental Petroleum Corp., Senior Notes |
6.950 | % | 7/1/24 | 1,000,000 | 1,126,250 | |||||||||||
Occidental Petroleum Corp., Senior Notes |
2.900 | % | 8/15/24 | 1,640,000 | 1,672,718 | |||||||||||
Occidental Petroleum Corp., Senior Notes |
5.875 | % | 9/1/25 | 1,190,000 | 1,322,387 | (b) | ||||||||||
Occidental Petroleum Corp., Senior Notes |
5.550 | % | 3/15/26 | 980,000 | 1,082,900 |
See Notes to Financial Statements.
6 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Oil, Gas & Consumable Fuels continued |
||||||||||||||||
Occidental Petroleum Corp., Senior Notes |
6.200 | % | 3/15/40 | 1,330,000 | $ | 1,613,290 | (b) | |||||||||
Petrobras Global Finance BV, Senior Notes |
5.750 | % | 2/1/29 | 7,580,000 | 8,229,985 | (b)(g) | ||||||||||
Petrobras Global Finance BV, Senior Notes |
6.750 | % | 1/27/41 | 6,620,000 | 7,098,560 | |||||||||||
Petroleos del Peru SA, Senior Notes |
4.750 | % | 6/19/32 | 1,000,000 | 1,058,065 | (a) | ||||||||||
Petroleos Mexicanos, Senior Notes |
6.375 | % | 1/23/45 | 3,970,000 | 3,434,983 | (b) | ||||||||||
Range Resources Corp., Senior Notes |
4.875 | % | 5/15/25 | 1,009,000 | 1,053,144 | |||||||||||
Range Resources Corp., Senior Notes |
9.250 | % | 2/1/26 | 8,231,000 | 8,899,769 | (b) | ||||||||||
Range Resources Corp., Senior Notes |
8.250 | % | 1/15/29 | 710,000 | 802,477 | (a) | ||||||||||
Rockies Express Pipeline LLC, Senior Notes |
6.875 | % | 4/15/40 | 1,430,000 | 1,621,691 | (a)(b) | ||||||||||
Summit Midstream Holdings LLC/ Summit Midstream Finance Corp., Secured Notes |
8.500 | % | 10/15/26 | 910,000 | 916,024 | (a)(d) | ||||||||||
Targa Resources Partners LP/Targa Resources Partners Finance Corp., Senior Notes |
5.875 | % | 4/15/26 | 300,000 | 313,596 | (b) | ||||||||||
Targa Resources Partners LP/Targa Resources Partners Finance Corp., Senior Notes |
6.500 | % | 7/15/27 | 1,150,000 | 1,233,375 | (b) | ||||||||||
Targa Resources Partners LP/Targa Resources Partners Finance Corp., Senior Notes |
6.875 | % | 1/15/29 | 270,000 | 302,738 | (b) | ||||||||||
Transportadora de Gas del Sur SA, Senior Notes |
6.750 | % | 5/2/25 | 1,860,000 | 1,737,575 | (a)(b) | ||||||||||
Western Midstream Operating LP, Senior Notes |
5.300 | % | 2/1/30 | 2,690,000 | 2,952,275 | (b) | ||||||||||
Western Midstream Operating LP, Senior Notes |
5.300 | % | 3/1/48 | 1,540,000 | 1,796,271 | (b) | ||||||||||
Western Midstream Operating LP, Senior Notes |
6.500 | % | 2/1/50 | 10,952,000 | 13,125,589 | (b) | ||||||||||
Williams Cos. Inc., Senior Notes |
3.700 | % | 1/15/23 | 1,040,000 | 1,069,667 | (b) | ||||||||||
Williams Cos. Inc., Senior Notes |
4.550 | % | 6/24/24 | 1,280,000 | 1,386,008 | (b) | ||||||||||
Williams Cos. Inc., Senior Notes |
7.500 | % | 1/15/31 | 780,000 | 1,078,133 | (b) | ||||||||||
Williams Cos. Inc., Senior Notes |
5.750 | % | 6/24/44 | 3,900,000 | 5,135,935 | (b) |
See Notes to Financial Statements.
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 7 |
Schedule of investments (unaudited) (contd)
October 31, 2021
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Oil, Gas & Consumable Fuels continued |
||||||||||||||||
YPF SA, Senior Notes |
8.500 | % | 7/28/25 | 3,270,000 | $ | 2,651,185 | (a)(b) | |||||||||
YPF SA, Senior Notes |
6.950 | % | 7/21/27 | 570,000 | 414,433 | (a) | ||||||||||
Total Oil, Gas & Consumable Fuels |
108,795,812 | |||||||||||||||
Total Energy |
110,289,700 | |||||||||||||||
Financials 17.0% | ||||||||||||||||
Banks 10.9% |
||||||||||||||||
Bank of America Corp., Junior Subordinated Notes (6.500% to 10/23/24 then 3 mo. USD LIBOR + 4.174%) |
6.500 | % | 10/23/24 | 2,550,000 | 2,824,125 | (b)(e)(f) | ||||||||||
Barclays PLC, Junior Subordinated Notes (8.000% to 6/15/24 then 5 year Treasury Constant Maturity Rate + 5.672%) |
8.000 | % | 6/15/24 | 1,150,000 | 1,282,969 | (b)(e)(f) | ||||||||||
BBVA Bancomer SA, Subordinated Notes (5.125% to 1/17/28 then 5 year Treasury Constant Maturity Rate + 2.650%) |
5.125 | % | 1/18/33 | 4,080,000 | 4,214,008 | (a)(f) | ||||||||||
BNP Paribas SA, Junior Subordinated Notes (7.375% to 8/19/25 then USD 5 year ICE Swap Rate + 5.150%) |
7.375 | % | 8/19/25 | 1,820,000 | 2,089,715 | (a)(b)(e)(f) | ||||||||||
Citigroup Inc., Junior Subordinated Notes (5.950% to 5/15/25 then 3 mo. USD LIBOR + 3.905%) |
5.950 | % | 5/15/25 | 750,000 | 810,000 | (b)(e)(f) | ||||||||||
Citigroup Inc., Junior Subordinated Notes (6.300% to 5/15/24 then 3 mo. USD LIBOR + 3.423%) |
6.300 | % | 5/15/24 | 5,400,000 | 5,763,420 | (b)(e)(f) | ||||||||||
Credit Agricole SA, Junior Subordinated Notes (8.125% to 12/23/25 then USD 5 year ICE Swap Rate + 6.185%) |
8.125 | % | 12/23/25 | 2,510,000 | 3,013,077 | (a)(b)(e)(f) | ||||||||||
HSBC Holdings PLC, Junior Subordinated Notes (6.500% to 3/23/28 then USD 5 year ICE Swap Rate + 3.606%) |
6.500 | % | 3/23/28 | 1,610,000 | 1,799,264 | (b)(e)(f) | ||||||||||
Intesa Sanpaolo SpA, Subordinated Notes |
5.017 | % | 6/26/24 | 2,180,000 | 2,338,337 | (a) | ||||||||||
Intesa Sanpaolo SpA, Subordinated Notes |
5.710 | % | 1/15/26 | 4,250,000 | 4,726,734 | (a)(b) |
See Notes to Financial Statements.
8 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Banks continued |
||||||||||||||||
JPMorgan Chase & Co., Junior Subordinated Notes (6.100% to 10/1/24 then 3 mo. USD LIBOR + 3.330%) |
6.100 | % | 10/1/24 | 2,410,000 | $ | 2,592,256 | (b)(e)(f) | |||||||||
NatWest Group PLC, Junior Subordinated Notes (7.648% to 9/30/31 then 3 mo. USD LIBOR + 2.500%) |
7.648 | % | 9/30/31 | 3,530,000 | 5,138,144 | (b)(e)(f) | ||||||||||
Santander UK Group Holdings PLC, Junior Subordinated Notes (7.375% to 6/24/22 then GBP 5 year Swap Rate + 5.543%) |
7.375 | % | 6/24/22 | 1,640,000 | GBP | 2,311,530 | (c)(e)(f) | |||||||||
TC Ziraat Bankasi AS, Senior Notes |
5.125 | % | 9/29/23 | 2,530,000 | 2,561,726 | (a)(b) | ||||||||||
UniCredit SpA, Subordinated Notes (7.296% to 4/2/29 then USD 5 year ICE Swap Rate + 4.914%) |
7.296 | % | 4/2/34 | 2,840,000 | 3,426,648 | (a)(b)(f) | ||||||||||
Total Banks |
44,891,953 | |||||||||||||||
Capital Markets 2.7% |
||||||||||||||||
Credit Suisse Group AG, Junior Subordinated Notes (7.250% to 9/12/25 then USD 5 year ICE Swap Rate + 4.332%) |
7.250 | % | 9/12/25 | 4,820,000 | 5,350,152 | (a)(b)(e)(f) | ||||||||||
UBS Group AG, Junior Subordinated Notes (7.000% to 1/31/24 then USD 5 year ICE Swap Rate + 4.344%) |
7.000 | % | 1/31/24 | 5,170,000 | 5,593,655 | (a)(e)(f) | ||||||||||
Total Capital Markets |
10,943,807 | |||||||||||||||
Consumer Finance 0.8% |
||||||||||||||||
Navient Corp., Senior Notes |
5.875 | % | 10/25/24 | 1,170,000 | 1,251,848 | (b) | ||||||||||
Navient Corp., Senior Notes |
6.750 | % | 6/15/26 | 1,990,000 | 2,199,109 | (b) | ||||||||||
Total Consumer Finance |
3,450,957 | |||||||||||||||
Diversified Financial Services 2.2% |
||||||||||||||||
AerCap Ireland Capital DAC/AerCap Global Aviation Trust, Senior Notes |
4.450 | % | 12/16/21 | 150,000 | 150,226 | (b) | ||||||||||
Global Aircraft Leasing Co. Ltd., Senior Notes (6.500% Cash or 7.250% PIK) |
6.500 | % | 9/15/24 | 6,070,686 | 5,903,105 | (a)(b)(h) | ||||||||||
Huarong Finance 2017 Co. Ltd., Senior Notes (3 mo. USD LIBOR + 1.325%) |
1.455 | % | 7/3/23 | 880,000 | 827,200 | (c)(f) |
See Notes to Financial Statements.
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 9 |
Schedule of investments (unaudited) (contd)
October 31, 2021
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Diversified Financial Services continued |
||||||||||||||||
Huarong Finance 2019 Co. Ltd., Senior Notes |
2.500 | % | 2/24/23 | 1,220,000 | $ | 1,178,825 | (c) | |||||||||
Huarong Finance 2019 Co. Ltd., Senior Notes |
2.125 | % | 9/30/23 | 690,000 | 651,629 | (c) | ||||||||||
Huarong Finance II Co. Ltd., Senior Notes |
4.875 | % | 11/22/26 | 450,000 | 439,875 | (c) | ||||||||||
Total Diversified Financial Services |
9,150,860 | |||||||||||||||
Insurance 0.4% |
||||||||||||||||
MetLife Capital Trust IV, Junior Subordinated Notes |
7.875 | % | 12/15/37 | 1,100,000 | 1,529,000 | (a)(b) | ||||||||||
Total Financials |
69,966,577 | |||||||||||||||
Health Care 9.8% | ||||||||||||||||
Health Care Equipment & Supplies 0.2% |
||||||||||||||||
Mozart Debt Merger Sub Inc., Senior Secured Notes |
3.875 | % | 4/1/29 | 750,000 | 747,188 | (a) | ||||||||||
Health Care Providers & Services 3.1% |
||||||||||||||||
CHS/Community Health Systems Inc., Senior Secured Notes |
8.000 | % | 3/15/26 | 1,900,000 | 2,006,875 | (a)(b) | ||||||||||
HCA Inc., Senior Notes |
5.625 | % | 9/1/28 | 600,000 | 703,938 | (b) | ||||||||||
HCA Inc., Senior Notes |
7.500 | % | 11/15/95 | 2,205,000 | 3,303,090 | (b) | ||||||||||
Legacy LifePoint Health LLC, Senior Secured Notes |
6.750 | % | 4/15/25 | 1,140,000 | 1,195,575 | (a) | ||||||||||
Magellan Health Inc., Senior Notes |
4.900 | % | 9/22/24 | 2,530,000 | 2,772,931 | (b) | ||||||||||
ModivCare Escrow Issuer Inc., Senior Notes |
5.000 | % | 10/1/29 | 910,000 | 926,762 | (a) | ||||||||||
Tenet Healthcare Corp., Secured Notes |
6.250 | % | 2/1/27 | 1,000,000 | 1,040,000 | (a)(b) | ||||||||||
Tenet Healthcare Corp., Senior Secured Notes |
7.500 | % | 4/1/25 | 610,000 | 648,125 | (a) | ||||||||||
Total Health Care Providers & Services |
|
12,597,296 | ||||||||||||||
Pharmaceuticals 6.5% |
||||||||||||||||
Bausch Health Americas Inc., Senior Notes |
8.500 | % | 1/31/27 | 4,660,000 | 4,951,250 | (a) | ||||||||||
Bausch Health Cos. Inc., Senior Notes |
6.125 | % | 4/15/25 | 3,696,000 | 3,769,070 | (a)(b) | ||||||||||
Bausch Health Cos. Inc., Senior Notes |
9.000 | % | 12/15/25 | 500,000 | 525,160 | (a)(b) | ||||||||||
Cidron Aida Finco Sarl, Senior Secured Notes |
6.250 | % | 4/1/28 | 940,000 | GBP | 1,267,153 | (a) |
See Notes to Financial Statements.
10 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Pharmaceuticals continued |
||||||||||||||||
Endo Luxembourg Finance Co. I Sarl/Endo US Inc., Senior Secured Notes |
6.125 | % | 4/1/29 | 1,450,000 | $ | 1,430,382 | (a) | |||||||||
Teva Pharmaceutical Finance Co. BV, Senior Notes |
2.950 | % | 12/18/22 | 9,888,000 | 9,974,520 | (b) | ||||||||||
Teva Pharmaceutical Finance Netherlands III BV, Senior Notes |
2.800 | % | 7/21/23 | 3,850,000 | 3,882,917 | (b) | ||||||||||
Teva Pharmaceutical Finance Netherlands III BV, Senior Notes |
6.000 | % | 4/15/24 | 1,160,000 | 1,218,000 | (b) | ||||||||||
Total Pharmaceuticals |
27,018,452 | |||||||||||||||
Total Health Care |
40,362,936 | |||||||||||||||
Industrials 11.9% | ||||||||||||||||
Aerospace & Defense 0.8% |
||||||||||||||||
TransDigm Inc., Senior Secured Notes |
8.000 | % | 12/15/25 | 3,220,000 | 3,429,300 | (a) | ||||||||||
Airlines 8.7% |
||||||||||||||||
American Airlines Inc./AAdvantage Loyalty IP Ltd., Senior Secured Notes |
5.750 | % | 4/20/29 | 1,610,000 | 1,734,775 | (a) | ||||||||||
Continental Airlines Pass-Through Trust |
5.983 | % | 4/19/22 | 751,028 | 762,308 | (b) | ||||||||||
Delta Air Lines Inc., Senior Notes |
3.625 | % | 3/15/22 | 3,000,000 | 3,022,976 | |||||||||||
Delta Air Lines Inc., Senior Notes |
3.800 | % | 4/19/23 | 5,160,000 | 5,350,391 | |||||||||||
Delta Air Lines Inc., Senior Notes |
2.900 | % | 10/28/24 | 1,070,000 | 1,093,321 | (b) | ||||||||||
Delta Air Lines Inc., Senior Notes |
7.375 | % | 1/15/26 | 880,000 | 1,035,276 | (b) | ||||||||||
Delta Air Lines Inc., Senior Secured Notes |
7.000 | % | 5/1/25 | 7,670,000 | 8,952,676 | (a)(b) | ||||||||||
Hawaiian Brand Intellectual Property Ltd./HawaiianMiles Loyalty Ltd., Senior Secured Notes |
5.750 | % | 1/20/26 | 1,276,000 | 1,341,395 | (a) | ||||||||||
Mileage Plus Holdings LLC/Mileage Plus Intellectual Property Assets Ltd., Senior Secured Notes |
6.500 | % | 6/20/27 | 3,190,000 | 3,475,856 | (a) | ||||||||||
Spirit Loyalty Cayman Ltd./Spirit IP Cayman Ltd., Senior Secured Notes |
8.000 | % | 9/20/25 | 4,037,998 | 4,524,930 | (a)(b) | ||||||||||
United Airlines Holdings Inc., Senior Notes |
4.250 | % | 10/1/22 | 3,165,000 | 3,230,674 |
See Notes to Financial Statements.
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 11 |
Schedule of investments (unaudited) (contd)
October 31, 2021
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Airlines continued |
||||||||||||||||
United Airlines Holdings Inc., Senior Notes |
5.000 | % | 2/1/24 | 980,000 | $ | 1,019,200 | ||||||||||
United Airlines Inc., Senior Secured Notes |
4.625 | % | 4/15/29 | 450,000 | 464,503 | (a) | ||||||||||
Total Airlines |
36,008,281 | |||||||||||||||
Building Products 0.7% |
||||||||||||||||
Standard Industries Inc., Senior Notes |
5.000 | % | 2/15/27 | 2,580,000 | 2,650,950 | (a)(b) | ||||||||||
Commercial Services & Supplies 1.0% |
||||||||||||||||
Allied Universal Holdco LLC/Allied Universal Finance Corp./Atlas Luxco 4 Sarl, Senior Secured Notes |
4.625 | % | 6/1/28 | 490,000 | 486,178 | (a) | ||||||||||
CoreCivic Inc., Senior Notes |
8.250 | % | 4/15/26 | 2,500,000 | 2,559,500 | |||||||||||
CoreCivic Inc., Senior Notes |
4.750 | % | 10/15/27 | 1,140,000 | 1,050,994 | |||||||||||
Total Commercial Services & Supplies |
4,096,672 | |||||||||||||||
Machinery 0.2% |
||||||||||||||||
Titan International Inc., Senior Secured Notes |
7.000 | % | 4/30/28 | 970,000 | 997,053 | (a)(b) | ||||||||||
Trading Companies & Distributors 0.5% |
||||||||||||||||
H&E Equipment Services Inc., Senior Notes |
3.875 | % | 12/15/28 | 1,210,000 | 1,202,438 | (a) | ||||||||||
United Rentals North America Inc., Senior Notes |
5.500 | % | 5/15/27 | 606,000 | 635,918 | |||||||||||
Total Trading Companies & Distributors |
|
1,838,356 | ||||||||||||||
Total Industrials |
49,020,612 | |||||||||||||||
Information Technology 2.2% | ||||||||||||||||
Communications Equipment 1.0% |
||||||||||||||||
CommScope Inc., Senior Notes |
8.250 | % | 3/1/27 | 4,001,000 | 4,082,420 | (a)(b) | ||||||||||
CommScope Technologies LLC, Senior Notes |
6.000 | % | 6/15/25 | 68,000 | 67,430 | (a)(b) | ||||||||||
Total Communications Equipment |
4,149,850 | |||||||||||||||
Technology Hardware, Storage & Peripherals 1.2% |
|
|||||||||||||||
CA Magnum Holdings, Senior Secured Notes |
5.375 | % | 10/31/26 | 480,000 | 492,421 | (a)(d) | ||||||||||
Dell International LLC/EMC Corp., Senior Notes |
7.125 | % | 6/15/24 | 1,230,000 | 1,252,017 | (a)(b) | ||||||||||
Seagate HDD Cayman, Senior Notes |
4.750 | % | 6/1/23 | 1,700,000 | 1,780,750 | (b) |
See Notes to Financial Statements.
12 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Technology Hardware, Storage & Peripherals continued |
|
|||||||||||||||
Seagate HDD Cayman, Senior Notes |
4.750 | % | 1/1/25 | 850,000 | $ | 919,063 | (b) | |||||||||
Seagate HDD Cayman, Senior Notes |
4.875 | % | 6/1/27 | 495,000 | 546,241 | |||||||||||
Total Technology Hardware, Storage & Peripherals |
|
4,990,492 | ||||||||||||||
Total Information Technology |
9,140,342 | |||||||||||||||
Materials 7.0% | ||||||||||||||||
Chemicals 1.0% |
||||||||||||||||
Braskem America Finance Co., Senior Notes |
7.125 | % | 7/22/41 | 700,000 | 849,635 | (b)(c) | ||||||||||
Orbia Advance Corp. SAB de CV, Senior Notes |
5.875 | % | 9/17/44 | 1,000,000 | 1,230,150 | (a)(b) | ||||||||||
Sasol Financing USA LLC, Senior Notes |
5.500 | % | 3/18/31 | 2,000,000 | 2,057,100 | |||||||||||
Total Chemicals |
4,136,885 | |||||||||||||||
Containers & Packaging 1.3% |
||||||||||||||||
ARD Finance SA, Senior Secured Notes (6.500% Cash or 7.250% PIK) |
6.500 | % | 6/30/27 | 2,790,000 | 2,926,012 | (a)(b)(h) | ||||||||||
Pactiv LLC, Senior Notes |
7.950 | % | 12/15/25 | 920,000 | 1,026,950 | (b) | ||||||||||
Trivium Packaging Finance BV, Senior Notes |
8.500 | % | 8/15/27 | 1,230,000 | 1,298,948 | (a) | ||||||||||
Total Containers & Packaging |
5,251,910 | |||||||||||||||
Metals & Mining 4.7% |
||||||||||||||||
ArcelorMittal SA, Senior Notes |
7.000 | % | 10/15/39 | 3,200,000 | 4,463,456 | (b) | ||||||||||
First Quantum Minerals Ltd., Senior Notes |
7.250 | % | 4/1/23 | 3,590,000 | 3,659,825 | (a) | ||||||||||
Freeport-McMoRan Inc., Senior Notes |
3.550 | % | 3/1/22 | 760,000 | 762,337 | (b) | ||||||||||
Freeport-McMoRan Inc., Senior Notes |
3.875 | % | 3/15/23 | 910,000 | 938,438 | (b) | ||||||||||
Freeport-McMoRan Inc., Senior Notes |
4.250 | % | 3/1/30 | 750,000 | 792,188 | |||||||||||
Freeport-McMoRan Inc., Senior Notes |
5.450 | % | 3/15/43 | 3,870,000 | 4,873,297 | (b) | ||||||||||
Vale Overseas Ltd., Senior Notes |
6.875 | % | 11/21/36 | 2,960,000 | 3,874,137 | (b) | ||||||||||
Total Metals & Mining |
19,363,678 | |||||||||||||||
Total Materials |
28,752,473 |
See Notes to Financial Statements.
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 13 |
Schedule of investments (unaudited) (contd)
October 31, 2021
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Real Estate 0.8% | ||||||||||||||||
Equity Real Estate Investment Trusts (REITs) 0.2% |
|
|||||||||||||||
Diversified Healthcare Trust, Senior Notes |
9.750 | % | 6/15/25 | 860,000 | $ | 935,250 | (b) | |||||||||
Real Estate Management & Development 0.6% |
|
|||||||||||||||
China Aoyuan Group Ltd., Senior Secured Notes |
7.950 | % | 2/19/23 | 630,000 | 314,586 | (c) | ||||||||||
China Aoyuan Group Ltd., Senior Secured Notes |
7.950 | % | 6/21/24 | 1,000,000 | 436,167 | (c) | ||||||||||
China SCE Group Holdings Ltd., Senior Secured Notes |
6.000 | % | 2/4/26 | 870,000 | 700,542 | (c) | ||||||||||
Yuzhou Group Holdings Co. Ltd., Senior Secured Notes |
6.000 | % | 10/25/23 | 500,000 | 267,042 | (c) | ||||||||||
Yuzhou Group Holdings Co. Ltd., Senior Secured Notes |
8.500 | % | 2/26/24 | 500,000 | 252,885 | (c) | ||||||||||
Yuzhou Group Holdings Co. Ltd., Senior Secured Notes |
8.375 | % | 10/30/24 | 1,100,000 | 556,109 | (c) | ||||||||||
Total Real Estate Management & Development |
|
2,527,331 | ||||||||||||||
Total Real Estate |
3,462,581 | |||||||||||||||
Utilities 2.0% | ||||||||||||||||
Electric Utilities 0.2% |
||||||||||||||||
Pampa Energia SA, Senior Notes |
7.500 | % | 1/24/27 | 1,170,000 | 1,038,001 | (a) | ||||||||||
Gas Utilities 1.2% |
||||||||||||||||
Suburban Propane Partners LP/ Suburban Energy Finance Corp., Senior Notes |
5.875 | % | 3/1/27 | 4,650,000 | 4,835,372 | (b) | ||||||||||
Independent Power and Renewable Electricity Producers 0.6% |
|
|||||||||||||||
Minejesa Capital BV, Senior Secured Notes |
4.625 | % | 8/10/30 | 2,380,000 | 2,475,200 | (a)(b) | ||||||||||
Total Utilities |
8,348,573 | |||||||||||||||
Total Corporate Bonds & Notes (Cost $435,126,034) |
|
505,106,780 | ||||||||||||||
Sovereign Bonds 9.0% | ||||||||||||||||
Argentina 1.2% |
||||||||||||||||
Argentine Republic Government International Bond, Senior Notes |
1.000 | % | 7/9/29 | 558,141 | 203,727 | |||||||||||
Provincia de Buenos Aires, Senior Notes, Step bond (3.900% to 9/1/22 then 5.250%) |
3.900 | % | 9/1/37 | 3,601,974 | 1,599,637 | (a) | ||||||||||
Provincia de Cordoba, Senior Notes, Step bond (5.000% to 6/10/22 then 6.875%) |
5.000 | % | 12/10/25 | 1,300,000 | 995,800 |
See Notes to Financial Statements.
14 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Argentina continued |
||||||||||||||||
Provincia de Cordoba, Senior Notes, Step bond (5.000% to 6/10/22 then 6.875%) |
5.000 | % | 12/10/25 | 300,000 | $ | 229,800 | (a)(c) | |||||||||
Provincia de Cordoba, Senior Notes, |
||||||||||||||||
Step bond (5.000% to 6/1/22 then 6.990%) |
5.000 | % | 6/1/27 | 3,070,000 | 2,068,412 | (a) | ||||||||||
Total Argentina |
5,097,376 | |||||||||||||||
Bahamas 0.4% |
||||||||||||||||
Bahamas Government International Bond, Senior Notes |
5.750 | % | 1/16/24 | 700,000 | 662,382 | (a) | ||||||||||
Bahamas Government International Bond, Senior Notes |
6.000 | % | 11/21/28 | 850,000 | 772,021 | (a) | ||||||||||
Total Bahamas |
1,434,403 | |||||||||||||||
Brazil 0.0% |
||||||||||||||||
Brazil Notas do Tesouro Nacional Serie F, Notes |
10.000 | % | 1/1/27 | 567,000 | BRL | 92,719 | ||||||||||
Costa Rica 0.1% |
||||||||||||||||
Costa Rica Government International Bond, Senior Notes |
7.158 | % | 3/12/45 | 460,000 | 466,215 | (a) | ||||||||||
Ecuador 0.4% |
||||||||||||||||
Ecuador Government International Bond, Senior Notes |
0.000 | % | 7/31/30 | 2,077,000 | 1,119,005 | (a) | ||||||||||
Ecuador Government International Bond, Senior Notes, Step bond (5.000% to 7/31/22 then 5.500%) |
5.000 | % | 7/31/30 | 598,000 | 497,835 | (a) | ||||||||||
Total Ecuador |
1,616,840 | |||||||||||||||
Egypt 0.5% |
||||||||||||||||
Egypt Government International Bond, Senior Notes |
7.600 | % | 3/1/29 | 2,230,000 | 2,247,795 | (a) | ||||||||||
Ghana 0.2% |
||||||||||||||||
Ghana Government International Bond, Senior Notes |
7.625 | % | 5/16/29 | 1,080,000 | 955,560 | (a) | ||||||||||
Guatemala 0.3% |
||||||||||||||||
Guatemala Government Bond, Senior Notes |
4.375 | % | 6/5/27 | 970,000 | 1,038,870 | (a) | ||||||||||
Indonesia 0.5% |
||||||||||||||||
Indonesia Treasury Bond |
6.500 | % | 2/15/31 | 29,188,000,000 | IDR | 2,111,714 |
See Notes to Financial Statements.
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 15 |
Schedule of investments (unaudited) (contd)
October 31, 2021
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Ivory Coast 0.1% |
||||||||||||||||
Ivory Coast Government International Bond, Senior Notes, Step bond |
5.750 | % | 12/31/32 | 340,973 | $ | 342,645 | (a) | |||||||||
Mexico 2.4% |
||||||||||||||||
Mexican Bonos, Senior Notes |
7.750 | % | 11/23/34 | 112,320,000 | MXN | 5,530,892 | ||||||||||
Mexican Bonos, Senior Notes |
7.750 | % | 11/13/42 | 41,370,000 | MXN | 1,975,616 | ||||||||||
Mexico Government International Bond, Senior Notes |
2.659 | % | 5/24/31 | 2,500,000 | 2,419,000 | |||||||||||
Total Mexico |
9,925,508 | |||||||||||||||
Nigeria 0.3% |
||||||||||||||||
Nigeria Government International Bond, Senior Notes |
7.875 | % | 2/16/32 | 1,130,000 | 1,155,531 | (c) | ||||||||||
Oman 0.4% |
||||||||||||||||
Oman Government International Bond, Senior Notes |
5.625 | % | 1/17/28 | 1,500,000 | 1,581,890 | (a) | ||||||||||
Panama 0.2% |
||||||||||||||||
Panama Government International Bond, Senior Notes |
2.252 | % | 9/29/32 | 690,000 | 651,622 | |||||||||||
Russia 1.3% |
||||||||||||||||
Russian Federal Bond OFZ |
7.000 | % | 1/25/23 | 98,290,000 | RUB | 1,366,265 | ||||||||||
Russian Federal Bond OFZ |
6.900 | % | 5/23/29 | 298,820,000 | RUB | 3,938,473 | ||||||||||
Total Russia |
5,304,738 | |||||||||||||||
Turkey 0.5% |
||||||||||||||||
Turkey Government International Bond, Senior Notes |
4.250 | % | 4/14/26 | 2,400,000 | 2,250,288 | |||||||||||
Ukraine 0.2% |
||||||||||||||||
Ukraine Government International Bond, Senior Notes |
7.375 | % | 9/25/32 | 800,000 | 824,976 | (a) | ||||||||||
Total Sovereign Bonds (Cost $36,743,025) |
|
37,098,690 | ||||||||||||||
U.S. Government & Agency Obligations 4.9% |
|
|||||||||||||||
U.S. Government Obligations 4.9% |
||||||||||||||||
U.S. Treasury Notes |
1.875 | % | 8/31/22 | 3,400,000 | 3,449,549 | (g) | ||||||||||
U.S. Treasury Notes |
1.625 | % | 5/31/23 | 1,000,000 | 1,020,000 | (g) | ||||||||||
U.S. Treasury Notes |
2.750 | % | 8/31/23 | 4,000,000 | 4,167,891 | (g) | ||||||||||
U.S. Treasury Notes |
2.125 | % | 3/31/24 | 3,000,000 | 3,106,992 | (g) | ||||||||||
U.S. Treasury Notes |
2.000 | % | 6/30/24 | 3,000,000 | 3,104,414 | (g) | ||||||||||
U.S. Treasury Notes |
0.375 | % | 1/31/26 | 2,000,000 | 1,940,078 | |||||||||||
U.S. Treasury Notes |
0.750 | % | 3/31/26 | 3,500,000 | 3,443,808 | (g) | ||||||||||
Total U.S. Government & Agency Obligations (Cost $19,753,082) |
|
20,232,732 |
See Notes to Financial Statements.
16 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security | Rate |
Maturity
Date |
Face
Amount |
Value | ||||||||||||
Senior Loans 3.8% | ||||||||||||||||
Communication Services 2.5% | ||||||||||||||||
Media 2.5% |
||||||||||||||||
Clear Channel Outdoor Holdings Inc., Term Loan B |
3.601-3.629 | % | 8/21/26 | 3,332,995 | $ | 3,284,716 | (f)(i)(j) | |||||||||
DIRECTV Financing LLC, Closing Date Term Loan (the greater of 3 mo. USD LIBOR or 0.750% + 5.000%) |
5.750 | % | 8/2/27 | 7,020,000 | 7,033,163 | (f)(i)(j) | ||||||||||
Total Communication Services |
10,317,879 | |||||||||||||||
Consumer Discretionary 0.4% | ||||||||||||||||
Hotels, Restaurants & Leisure 0.4% |
||||||||||||||||
Royal Caribbean Cruises Ltd. |
| 4/5/22 | 1,700,000 | 1,664,589 | (k) | |||||||||||
Industrials 0.9% | ||||||||||||||||
Airlines 0.9% |
||||||||||||||||
Mileage Plus Holdings LLC, Initial Term Loan (the greater of 3 mo. USD LIBOR or 1.000% +5.250%) |
6.250 | % | 6/21/27 | 500,000 | 533,158 | (f)(i)(j) | ||||||||||
United Airlines Inc., Term Loan B (the greater of 1 mo. USD LIBOR or 0.750% +3.750%) |
4.500 | % | 4/21/28 | 3,049,650 | 3,097,026 | (f)(i)(j) | ||||||||||
Total Industrials |
3,630,184 | |||||||||||||||
Total Senior Loans (Cost $15,446,737) |
15,612,652 | |||||||||||||||
Convertible Bonds & Notes 1.6% | ||||||||||||||||
Communication Services 1.1% | ||||||||||||||||
Media 1.1% |
||||||||||||||||
DISH Network Corp., Senior Notes |
3.375 | % | 8/15/26 | 4,475,000 | 4,570,480 | |||||||||||
Industrials 0.5% | ||||||||||||||||
Airlines 0.5% |
||||||||||||||||
Spirit Airlines Inc., Senior Notes |
1.000 | % | 5/15/26 | 2,170,000 | 1,962,548 | |||||||||||
Total Convertible Bonds & Notes (Cost $5,766,613) |
|
6,533,028 | ||||||||||||||
Shares | ||||||||||||||||
Convertible Preferred Stocks 0.3% | ||||||||||||||||
Energy 0.3% | ||||||||||||||||
Oil, Gas & Consumable Fuels 0.3% |
||||||||||||||||
Targa Resources Corp., Non Voting Shares (Cost $1,512,000) |
9.500 | % | 1,440 | 1,565,013 |
See Notes to Financial Statements.
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 17 |
Schedule of investments (unaudited) (contd)
October 31, 2021
Western Asset High Income Fund II Inc.
(Percentages shown based on Fund net assets)
Security |
Expiration
Date |
Warrants | Value | |||||||||||||
Warrants 0.0% | ||||||||||||||||
EG Acquisition Corp., Class A Shares (Cost $23,550) |
5/28/28 | 24,596 | 15,496 | * | ||||||||||||
Shares | ||||||||||||||||
Common Stocks 0.0% | ||||||||||||||||
Energy 0.0% | ||||||||||||||||
Energy Equipment & Services 0.0% |
||||||||||||||||
Hercules Offshore Inc. (Escrow) |
96,800 | $ | 11,293 | *(l)(m) | ||||||||||||
KCAD Holdings I Ltd. |
533,873,172 | 0 | *(l)(m)(n) | |||||||||||||
Total Common Stocks (Cost $7,578,642) |
|
11,293 | ||||||||||||||
Total Investments before Short-Term Investments (Cost $521,949,683) |
|
586,175,684 | ||||||||||||||
Rate | ||||||||||||||||
Short-Term Investments 1.4% | ||||||||||||||||
Western Asset Premier Institutional Government Reserves, Premium Shares (Cost $5,672,307) |
0.010 | % | 5,672,307 | 5,672,307 | (o) | |||||||||||
Total Investments 143.5% (Cost $527,621,990) |
|
591,847,991 | ||||||||||||||
Liabilities in Excess of Other Assets (43.5)% |
|
(179,450,683 | ) | |||||||||||||
Total Net Assets 100.0% |
$ | 412,397,308 |
See Notes to Financial Statements.
18 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Western Asset High Income Fund II Inc.
|
Face amount denominated in U.S. dollars, unless otherwise noted. |
|
Represents less than 0.1%. |
* |
Non-income producing security. |
(a) |
Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors. |
(b) |
All or a portion of this security is pledged as collateral pursuant to the loan agreement (Note 6). |
(c) |
Security is exempt from registration under Regulation S of the Securities Act of 1933. Regulation S applies to securities offerings that are made outside of the United States and do not involve direct selling efforts in the United States. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors. |
(d) |
Securities traded on a when-issued or delayed delivery basis. |
(e) |
Security has no maturity date. The date shown represents the next call date. |
(f) |
Variable rate security. Interest rate disclosed is as of the most recent information available. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above. |
(g) |
All or a portion of this security is held by the counterparty as collateral for open reverse repurchase agreements. |
(h) |
Payment-in-kind security for which the issuer has the option at each interest payment date of making interest payments in cash or additional securities. |
(i) |
Interest rates disclosed represent the effective rates on senior loans. Ranges in interest rates are attributable to multiple contracts under the same loan. |
(j) |
Senior loans may be considered restricted in that the Fund ordinarily is contractually obligated to receive approval from the agent bank and/or borrower prior to the disposition of a senior loan. |
(k) |
All or a portion of this loan is unfunded as of October 31, 2021. The interest rate for fully unfunded term loans is to be determined. |
(l) |
Security is valued in good faith in accordance with procedures approved by the Board of Directors (Note 1). |
(m) |
Security is valued using significant unobservable inputs (Note 1). |
(n) |
Value is less than $1. |
(o) |
In this instance, as defined in the Investment Company Act of 1940, an Affiliated Company represents Fund ownership of at least 5% of the outstanding voting securities of an issuer, or a company which is under common ownership or control with the Fund. At October 31, 2021, the total market value of investments in Affiliated Companies was $5,672,307 and the cost was $5,672,307 (Note 9). |
See Notes to Financial Statements.
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 19 |
Schedule of investments (unaudited) (contd)
October 31, 2021
Western Asset High Income Fund II Inc.
At October 31, 2021, the Fund had the following open reverse repurchase agreements:
Counterparty | Rate |
Effective
Date |
Maturity
Date |
Face Amount
of Reverse Repurchase Agreements |
Asset Class of Collateral* |
Collateral
Value** |
||||||||||||||||
Deutsche Bank AG | 0.090 | % | 8/26/2021 | 11/26/2021 | $ | 18,512,750 | U.S. Government & Agency Obligations | $ | 18,357,379 | |||||||||||||
Goldman Sachs | 0.500 | % | 10/15/2021 | TBD*** | 6,834,307 | Corporate Bonds & Notes | 8,338,948 | |||||||||||||||
Group Inc. | Cash | 155,000 | ||||||||||||||||||||
$ | 25,347,057 | $ | 26,851,327 |
* |
Refer to the Schedule of Investments for positions held at the counterparty as collateral for reverse repurchase agreements. |
** |
Including accrued interest. |
*** |
TBD To Be Determined; These reverse repurchase agreements have no maturity dates because they are renewed daily and can be terminated by either the Fund or the counterparty in accordance with the terms of the agreements. The rates for these agreements are variable. The rate disclosed is the rate as of October 31, 2021. |
At October 31, 2021, the Fund had the following open futures contracts:
Number of
Contracts |
Expiration
Date |
Notional
Amount |
Market
Value |
Unrealized
Appreciation |
||||||||||||||||
Contracts to Sell: | ||||||||||||||||||||
U.S. Treasury 10-Year Notes | 184 | 12/21 | $ | 24,587,092 | $ | 24,049,376 | $ | 537,716 |
At October 31, 2021, the Fund had the following open forward foreign currency contracts:
Currency
Purchased |
Currency
Sold |
Counterparty |
Settlement
Date |
Unrealized
Appreciation (Depreciation) |
||||||||||||||||
EUR | 4,505,481 | USD | 5,216,647 | BNP Paribas SA | 1/18/22 | $ | 2,592 | |||||||||||||
USD | 1,860,882 | EUR | 1,600,000 | Citibank N.A. | 1/18/22 | 7,410 | ||||||||||||||
USD | 1,782,365 | GBP | 1,300,000 | Goldman Sachs Group Inc. | 1/18/22 | 2,782 | ||||||||||||||
USD | 6,434,022 | GBP | 4,714,806 | Goldman Sachs Group Inc. | 1/18/22 | (20,123) | ||||||||||||||
CAD | 12,453 | USD | 9,920 | Morgan Stanley & Co. Inc. | 1/18/22 | 144 | ||||||||||||||
Total |
|
$ | (7,195) |
Abbreviation(s) used in this table: |
||
CAD | Canadian Dollar | |
EUR | Euro | |
GBP | British Pound | |
USD | United States Dollar |
See Notes to Financial Statements.
20 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Statement of assets and liabilities (unaudited)
October 31, 2021
Assets: | ||||
Investments in unaffiliated securities, at value (Cost $521,949,683) |
$ | 586,175,684 | ||
Investments in affiliated securities, at value (Cost $5,672,307) |
5,672,307 | |||
Foreign currency, at value (Cost $524,954) |
516,373 | |||
Cash |
1,936,631 | |||
Interest and dividends receivable |
8,135,093 | |||
Receivable for securities sold |
5,635,690 | |||
Deposits with brokers for open futures contracts |
312,003 | |||
Deposits with brokers for open reverse repurchase agreements |
155,000 | |||
Unrealized appreciation on forward foreign currency contracts |
12,928 | |||
Receivable from broker net variation margin on open futures contracts |
8,624 | |||
Prepaid expenses |
4,232 | |||
Total Assets |
608,564,565 | |||
Liabilities: | ||||
Loan payable (Note 6) |
154,500,000 | |||
Payable for open reverse repurchase agreements (Note 3) |
25,347,057 | |||
Payable for securities purchased |
12,762,062 | |||
Distributions payable |
2,881,803 | |||
Investment management fee payable |
405,874 | |||
Interest expense payable |
49,519 | |||
Unrealized depreciation on forward foreign currency contracts |
20,123 | |||
Directors fees payable |
13,156 | |||
Accrued expenses |
187,663 | |||
Total Liabilities |
196,167,257 | |||
Total Net Assets | $ | 412,397,308 | ||
Net Assets: | ||||
Par value ($0.001 par value; 58,812,301 shares issued and outstanding; 100,000,000 shares authorized) |
$ | 58,812 | ||
Paid-in capital in excess of par value |
555,028,112 | |||
Total distributable earnings (loss) |
(142,689,616) | |||
Total Net Assets | $ | 412,397,308 | ||
Shares Outstanding | 58,812,301 | |||
Net Asset Value | $7.01 |
See Notes to Financial Statements.
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 21 |
Statement of operations (unaudited)
For the Six Months Ended October 31, 2021
See Notes to Financial Statements.
22 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Statements of changes in net assets
For the Six Months Ended October 31, 2021 (unaudited)
and the Year Ended April 30, 2021 |
October 31 | April 30 | ||||||
Operations: | ||||||||
Net investment income |
$ | 16,078,197 | $ | 37,178,332 | ||||
Net realized gain |
3,680,255 | 5,941,309 | ||||||
Change in net unrealized appreciation (depreciation) |
(10,440,609) | 76,115,511 | ||||||
Increase in Net Assets From Operations |
9,317,843 | 119,235,152 | ||||||
Distributions to Shareholders From (Note 1): | ||||||||
Total distributable earnings |
(17,273,529) | (34,735,425) | ||||||
Return of capital |
| (7,277,376) | ||||||
Decrease in Net Assets From Distributions to Shareholders |
(17,273,529) | (42,012,801) | ||||||
Fund Share Transactions: | ||||||||
Reinvestment of distributions (150,489 and 0 shares issued, respectively) |
1,079,167 | | ||||||
Cost of shares repurchased through tender offer (0 and 25,577,060 shares repurchased, respectively) (Note 5) |
| (179,295,192) | ||||||
Increase (Decrease) in Net Assets From Fund Share Transactions |
1,079,167 | (179,295,192) | ||||||
Decrease in Net Assets |
(6,876,519) | (102,072,841) | ||||||
Net Assets: | ||||||||
Beginning of period |
419,273,827 | 521,346,668 | ||||||
End of period |
$ | 412,397,308 | $ | 419,273,827 |
See Notes to Financial Statements.
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 23 |
Statement of cash flows (unaudited)
For the Six Months Ended October 31, 2021
Increase (Decrease) in Cash: | ||||
Cash Flows from Operating Activities: | ||||
Net increase in net assets resulting from operations |
$ | 9,317,843 | ||
Adjustments to reconcile net increase in net assets resulting from operations
|
||||
Purchases of portfolio securities |
(134,637,210) | |||
Sales of portfolio securities |
145,990,464 | |||
Net purchases, sales and maturities of short-term investments |
(1,411,360) | |||
Return of capital |
48,426 | |||
Net amortization of premium (accretion of discount) |
(3,080,650) | |||
Increase in receivable for securities sold |
(3,809,087) | |||
Increase in interest and dividends receivable |
(458,347) | |||
Decrease in prepaid expenses |
14,062 | |||
Increase in receivable from broker net variation margin on open futures contracts |
(8,624) | |||
Decrease in payable for securities purchased |
(3,554,541) | |||
Increase in investment management fee payable |
17,281 | |||
Decrease in Directors fees payable |
(5,606) | |||
Increase in interest expense payable |
6,666 | |||
Increase in accrued expenses |
48,731 | |||
Net realized gain on investments |
(3,943,139) | |||
Change in net unrealized appreciation (depreciation) of investments and forward
foreign
|
10,969,235 | |||
Net Cash Provided in Operating Activities* |
15,504,144 | |||
Cash Flows from Financing Activities: | ||||
Distributions paid on common stock (net of distributions payable) |
(16,186,988) | |||
Decrease in loan facility borrowings |
(3,500,000) | |||
Increase in payable for open reverse repurchase agreements |
6,786,807 | |||
Net Cash Used by Financing Activities |
(12,900,181) | |||
Net Increase in Cash and Restricted Cash | 2,603,963 | |||
Cash and restricted cash at beginning of period |
316,044 | |||
Cash and restricted cash at end of period |
$ | 2,920,007 |
* |
Included in operating expenses is cash of $691,474 paid for interest on borrowings. |
The following table provides a reconciliation of cash (including foreign currency) and restricted cash reported within the Statement of Assets and Liabilities that sums to the total of such amounts shown on the Statement of Cash Flows. |
October 31, 2021 | ||||
Cash | $ | 2,453,004 | ||
Restricted cash | 467,003 | |||
Total cash and restricted cash shown in the Statement of Cash Flows | $ | 2,920,007 |
Restricted cash consists of cash that has been segregated to cover the Funds collateral or margin obligations under derivative contracts and for reverse repurchase agreements. It is separately reported on the Statement of Assets and Liabilities as Deposits with brokers. |
Non-Cash Financing Activities: | ||||
Proceeds from reinvestment of distributions |
$1,079,167 |
24 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
See Notes to Financial Statements.
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 25 |
Financial highlights (contd)
For a share of capital stock outstanding throughout each year ended April 30,
unless otherwise noted: |
||||||||||||||||||||||||
20211,2 | 20211 | 20201 | 20191 | 20181 | 20171 | |||||||||||||||||||
Supplemental data: | ||||||||||||||||||||||||
Loan Outstanding, End of Period (000s) |
$154,500 | $158,000 | $208,000 | $246,500 | $235,000 | $240,000 | ||||||||||||||||||
Asset Coverage Ratio for Loan Outstanding13 |
367 | % | 365 | % | 351 | % | 352 | % | 371 | % | 380 | % | ||||||||||||
Asset Coverage, per $1,000 Principal Amount of Loan Outstanding13 |
$3,669 | $3,654 | $3,506 | $3,524 | $3,710 | $3,796 | ||||||||||||||||||
Weighted Average Loan (000s) Weighted Average Interest |
$155,641 | $178,800 | $241,971 | $242,889 | $239,548 | $240,000 | ||||||||||||||||||
Rate on Loan |
0.85 | % | 0.86 | % | 2.58 | % | 3.08 | % | 2.17 | % | 1.41 | % |
1 |
Per share amounts have been calculated using the average shares method. |
2 |
For the six months ended October 31, 2021 (unaudited). |
3 |
The actual source of the Funds current fiscal year distributions may be from net investment income, return of capital or a combination of both. Shareholders will be informed of the tax characteristics of the distributions after the close of the fiscal year. |
4 |
The repurchase plan was completed at an average repurchase price of $4.91 for 917,344 shares and $4,506,248 for the year ended April 30, 2020 and $5.98 for 1,047,640 shares and $6,268,230 for the year ended April 30, 2019. |
5 |
The tender offer was completed at a price of $7.01 for 25,577,060 shares and $179,295,192 for the year ended April 30, 2021. |
6 |
Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. |
7 |
The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. |
8 |
The total return calculation assumes that distributions are reinvested in accordance with the Funds dividend reinvestment plan. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. |
9 |
Annualized. |
10 |
Included in the expense ratios are certain non-recurring legal and transfer agent fees that were incurred by the Fund during the period. Without these fees, the gross and net expense ratios would have been 2.37% and 2.35%, respectively. |
11 |
Reflects fee waivers and/or expense reimbursements. |
12 |
The manager has agreed to waive the Funds management fee to an extent sufficient to offset the net management fee payable in connection with any investment in an affiliated money market fund. |
13 |
Represents value of net assets plus the loan outstanding at the end of the period divided by the loan outstanding at the end of the period. |
See Notes to Financial Statements.
26 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Notes to financial statements (unaudited)
1. Organization and significant accounting policies
Western Asset High Income Fund II Inc. (the Fund) was incorporated in Maryland and is registered as a diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the 1940 Act). The Fund seeks to maximize current income by investing at least 80% of its net assets, plus any borrowings for investment purposes, in high-yield debt securities. As a secondary objective, the Fund seeks capital appreciation to the extent consistent with its objective of seeking to maximize current income.
The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (GAAP). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services typically use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Funds Board of Directors.
The Board of Directors is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Global Fund Valuation Committee (known as Legg Mason North Atlantic Fund Valuation Committee prior to March 1, 2021) (the Valuation Committee). The Valuation Committee, pursuant to the policies adopted by the Board of Directors, is responsible for making fair value determinations, evaluating the
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 27 |
Notes to financial statements (unaudited) (contd)
effectiveness of the Funds pricing policies, and reporting to the Board of Directors. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.
The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuers financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.
For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Directors, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Directors quarterly.
The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
|
Level 1 quoted prices in active markets for identical investments |
|
Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
|
Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments) |
The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
28 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
The following is a summary of the inputs used in valuing the Funds assets and liabilities carried at fair value:
ASSETS | ||||||||||||||||
Description |
Quoted Prices
(Level 1) |
Other Significant
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | ||||||||||||
Long-term investments: | ||||||||||||||||
Corporate bonds & notes |
| $ | 505,106,780 | | $ | 505,106,780 | ||||||||||
Sovereign bonds |
| 37,098,690 | | 37,098,690 | ||||||||||||
U.S. Government & agency obligations |
| 20,232,732 | | 20,232,732 | ||||||||||||
Senior loans |
| 15,612,652 | | 15,612,652 | ||||||||||||
Convertible bonds & notes |
| 6,533,028 | | 6,533,028 | ||||||||||||
Convertible preferred stocks |
| 1,565,013 | | 1,565,013 | ||||||||||||
Warrants |
$ | 15,496 | | | 15,496 | |||||||||||
Common stocks |
| | $ | 11,293 | 11,293 | |||||||||||
Total long-term investments | 15,496 | 586,148,895 | 11,293 | 586,175,684 | ||||||||||||
Short-term investments | 5,672,307 | | | 5,672,307 | ||||||||||||
Total investments | $ | 5,687,803 | $ | 586,148,895 | $ | 11,293 | $ | 591,847,991 | ||||||||
Other financial instruments: | ||||||||||||||||
Futures contracts |
$ | 537,716 | | | $ | 537,716 | ||||||||||
Forward foreign currency contracts |
| $ | 12,928 | | 12,928 | |||||||||||
Total other financial instruments | $ | 537,716 | $ | 12,928 | | $ | 550,644 | |||||||||
Total | $ | 6,225,519 | $ | 586,161,823 | $ | 11,293 | $ | 592,398,635 | ||||||||
LIABILITIES | ||||||||||||||||
Description |
Quoted Prices
(Level 1) |
Other Significant
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total | ||||||||||||
Other financial instruments: | ||||||||||||||||
Forward foreign currency contracts |
| $ | 20,123 | | $ | 20,123 |
|
See Schedule of Investments for additional detailed categorizations. |
|
Reflects the unrealized appreciation (depreciation) of the instruments. |
(b) Futures contracts. The Fund uses futures contracts generally to gain exposure to, or hedge against, changes in interest rates or gain exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the Fund is required to deposit cash or securities with a broker in an amount equal to a certain percentage of the contract amount. This is known as the initial margin and subsequent payments (variation margin) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract. For certain futures, including foreign denominated futures, variation margin is not settled daily,
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 29 |
Notes to financial statements (unaudited) (contd)
but is recorded as a net variation margin payable or receivable. The daily changes in contract value are recorded as unrealized appreciation or depreciation in the Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts involve, to varying degrees, risk of loss in excess of the amounts reflected in the financial statements. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(c) Forward foreign currency contracts. The Fund enters into a forward foreign currency contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated portfolio transaction. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price with delivery and settlement at a future date. The contract is marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward foreign currency contract is closed, through either delivery or offset by entering into another forward foreign currency contract, the Fund recognizes a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it is closed.
Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency.
Forward foreign currency contracts involve elements of market risk in excess of the amounts reflected on the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.
(d) Loan participations. The Fund may invest in loans arranged through private negotiation between one or more financial institutions. The Funds investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection with purchasing participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement related to the loan, or any rights of off-set against the borrower and the Fund may not benefit directly from any collateral supporting the loan in which it has purchased the participation.
The Fund assumes the credit risk of the borrower, the lender that is selling the participation and any other persons interpositioned between the Fund and the borrower. In the event of the insolvency of the lender selling the participation, the Fund may be treated as a general creditor of the lender and may not benefit from any off-set between the lender and the borrower.
(e) Unfunded loan commitments. The Fund may enter into certain credit agreements where all or a portion of the total amount committed may be unfunded. The Fund is obligated to fund these commitments at the borrowers discretion. The commitments are disclosed in the accompanying Schedule of Investments. At October 31, 2021, the Fund had sufficient cash and/or securities to cover these commitments.
30 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
(f) Reverse repurchase agreements. The Fund may enter into reverse repurchase agreements. Under the terms of a typical reverse repurchase agreement, a fund sells a security subject to an obligation to repurchase the security from the buyer at an agreed upon time and price. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Funds use of the proceeds of the agreement may be restricted pending a determination by the counterparty, or its trustee or receiver, whether to enforce the Funds obligation to repurchase the securities. In entering into reverse repurchase agreements, the Fund will pledge cash, U.S. government securities or other liquid debt obligations at least equal in value to its obligations with respect to reverse repurchase agreements or will take other actions permitted by law to cover its obligations. If the market value of the collateral declines during the period, the Fund may be required to post additional collateral to cover its obligation. Cash collateral that has been pledged to cover obligations of the Fund under reverse repurchase agreements, if any, will be reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral are noted in the Schedule of Investments. Interest payments made on reverse repurchase agreements are recognized as a component of Interest expense on the Statement of Operations. In periods of increased demand for the security, the Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund.
(g) Securities traded on a when-issued and delayed delivery basis. The Fund may trade securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the securities are purchased or sold by the Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction.
Purchasing such securities involves risk of loss if the value of the securities declines prior to settlement. These securities are subject to market fluctuations and their current value is determined in the same manner as for other securities.
(h) Cash flow information. The Fund invests in securities and distributes dividends from net investment income and net realized gains, which are paid in cash and may be reinvested at the discretion of shareholders. These activities are reported in the Statements of Changes in Net Assets and additional information on cash receipts and cash payments is presented in the Statement of Cash Flows.
(i) Foreign currency translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 31 |
Notes to financial statements (unaudited) (contd)
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
(j) Credit and market risk. The Fund invests in high-yield and emerging market instruments that are subject to certain credit and market risks. The yields of high-yield and emerging market debt obligations reflect, among other things, perceived credit and market risks. The Funds investments in securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. The consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of investments held by the Fund. The Funds investments in non-U.S. dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.
(k) Foreign investment risks. The Funds investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or may pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.
(l) Counterparty risk and credit-risk-related contingent features of derivative instruments. The Fund may invest in certain securities or engage in other transactions where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may invest in securities of issuers, which may also be considered counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The Funds subadviser attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual counterparty based on its assessment and (iii) requiring collateral from the counterparty for certain transactions.
32 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the subadviser. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.
With exchange traded and centrally cleared derivatives, there is less counterparty risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, the credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default of the clearing broker or clearinghouse.
The Fund has entered into master agreements, such as an International Swaps and Derivatives Association, Inc. Master Agreement (ISDA Master Agreement) or similar agreement, with certain of its derivative counterparties that govern over-the-counter (OTC) derivatives and provide for general obligations, representations, agreements, collateral posting terms, netting provisions in the event of default or termination and credit related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Funds net assets or net asset value per share over a specified period of time. If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.
Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments payables and/or receivables with collateral held and/or posted and create one single net payment. However, absent an event of default by the counterparty or a termination of the agreement, the terms of the ISDA Master Agreements do not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The enforceability of the right to offset may vary by jurisdiction.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearinghouse for exchange traded derivatives while collateral terms are contract specific for OTC traded derivatives. Cash collateral that has been pledged to cover obligations of the Fund under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the Schedule of Investments.
As of October 31, 2021, the Fund held forward foreign currency contracts with credit related contingent features which had a liability position of $20,123. If a contingent feature in the master agreements would have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties.
(m) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income (including interest income from payment-in-kind securities), adjusted for amortization of premium and accretion of discount, is recorded on
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 33 |
Notes to financial statements (unaudited) (contd)
the accrual basis. Paydown gains and losses on mortgage- and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.
(n) Distributions to shareholders. Distributions from net investment income of the Fund, if any, are declared quarterly and paid on a monthly basis. The actual source of the Funds current fiscal year distributions may be from net investment income, return of capital or a combination of both. Shareholders will be informed of the tax characteristics of the distributions after the close of the fiscal year. Distributions of net realized gains, if any, are declared at least annually. Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(o) Compensating balance arrangements. The Fund has an arrangement with its custodian bank whereby a portion of the custodians fees is paid indirectly by credits earned on the Funds cash on deposit with the bank.
(p) Federal and other taxes. It is the Funds policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the Code), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Funds financial statements.
Management has analyzed the Funds tax positions taken on income tax returns for all open tax years and has concluded that as of April 30, 2021, no provision for income tax is required in the Funds financial statements. The Funds federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
Under the applicable foreign tax laws, a withholding tax may be imposed on interest, dividends and capital gains at various rates.
(q) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share.
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (LMPFA) is the Funds investment manager. Western Asset Management Company, LLC (Western Asset), Western Asset Management Company Limited (Western Asset Limited) and Western Asset Management
34 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Company Pte. Ltd. (Western Asset Singapore) are the Funds subadvisers. LMPFA, Western Asset, Western Asset Limited and Western Asset Singapore are indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (Franklin Resources).
LMPFA provides administrative and certain oversight services to the Fund. The Fund pays LMPFA an investment management fee, calculated daily and paid monthly, at an annual rate of 0.80% of the Funds average weekly net assets plus the proceeds of any outstanding borrowings used for leverage and any proceeds from the issuance of preferred stock.
LMPFA delegates to Western Asset the day-to-day portfolio management of the Fund. Western Asset Limited and Western Asset Singapore provide certain subadvisory services to the Fund relating to currency transactions and investments in non-U.S. dollar denominated debt securities. Western Asset Limited and Western Asset Singapore do not receive any compensation from the Fund and are paid by Western Asset for their services to the Fund. For its services, LMPFA pays Western Asset a fee monthly, at an annual rate equal to 70% of the net management fee it receives from the Fund. In turn, Western Asset pays Western Asset Limited and Western Asset Singapore a monthly subadvisory fee in an amount equal to 100% of the management fee paid to Western Asset on the assets that Western Asset allocates to each such non-U.S. subadviser to manage.
During periods in which the Fund utilizes financial leverage, the fees paid to LMPFA will be higher than if the Fund did not utilize leverage because the fees are calculated as a percentage of the Funds assets, including those investments purchased with leverage.
The manager has agreed to waive the Funds management fee to an extent sufficient to offset the net management fee payable in connection with any investment in an affiliated money market fund.
During the six months ended October 31, 2021, fees waived and/or expenses reimbursed amounted to $508, all of which was an affiliated money market fund waiver.
All officers and one Director of the Fund are employees of Franklin Resources or its affiliates and do not receive compensation from the Fund.
3. Investments
During the six months ended October 31, 2021, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) and U.S. Government & Agency Obligations were as follows:
Investments |
U.S. Government &
Agency Obligations |
|||||||
Purchases | $ | 132,687,913 | $ | 1,949,297 | ||||
Sales | 144,287,730 | 1,702,734 |
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 35 |
Notes to financial statements (unaudited) (contd)
At October 31, 2021, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:
Cost |
Gross
Unrealized Appreciation |
Gross
Unrealized Depreciation |
Net
Unrealized Appreciation (Depreciation) |
|||||||||||||
Securities | $ | 527,621,990 | $ | 74,824,564 | $ | (10,598,563) | $ | 64,226,001 | ||||||||
Futures contracts | | 537,716 | | 537,716 | ||||||||||||
Forward foreign currency contracts | | 12,928 | (20,123) | (7,195) |
Transactions in reverse repurchase agreements for the Fund during the six months ended October 31, 2021 were as follows:
Average Daily
Balance* |
Weighted Average
Interest Rate* |
Maximum Amount
Outstanding |
||
$22,126,632 | 0.188% | $25,524,250 |
* |
Averages based on the number of days that the Fund had reverse repurchase agreements outstanding. |
Interest rates on reverse repurchase agreements ranged from 0.070% to 0.750% during the six months ended October 31, 2021. Interest expense incurred on reverse repurchase agreements totaled $21,229.
4. Derivative instruments and hedging activities
Below is a table, grouped by derivative type, that provides information about the fair value and the location of derivatives within the Statement of Assets and Liabilities at October 31, 2021.
ASSET DERIVATIVES1 |
||||||||||||
Interest
Rate Risk |
Foreign
Exchange Risk |
Total | ||||||||||
Futures contracts2 | $ | 537,716 | | $ | 537,716 | |||||||
Forward foreign currency contracts | | $ | 12,928 | 12,928 | ||||||||
Total | $ | 537,716 | $ | 12,928 | $ | 550,644 |
LIABILITY DERIVATIVES1 |
||||||||||||
Foreign
Exchange Risk |
||||||||||||
Forward foreign currency contracts | $ | 20,123 |
1 |
Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation and for liability derivatives is payables/net unrealized depreciation. |
2 |
Includes cumulative unrealized appreciation (depreciation) of futures contracts as reported in the Schedule of Investments. Only net variation margin is reported within the receivables and/or payables on the Statement of Assets and Liabilities. |
36 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
The following tables provide information about the effect of derivatives and hedging activities on the Funds Statement of Operations for the six months ended October 31, 2021. The first table provides additional detail about the amounts and sources of gains (losses) realized on derivatives during the period. The second table provides additional information about the change in unrealized appreciation (depreciation) resulting from the Funds derivatives and hedging activities during the period.
AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED | ||||||||||||
Interest
Rate Risk |
Foreign
Exchange Risk |
Total | ||||||||||
Futures contracts | $ | (130,446) | | $ | (130,446) | |||||||
Forward foreign currency contracts | | $ | (130,382) | (130,382) | ||||||||
Total | $ | (130,446) | $ | (130,382) | $ | (260,828) |
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED | ||||||||||||
Interest
Rate Risk |
Foreign
Exchange Risk |
Total | ||||||||||
Futures contracts | $ | 537,716 | $ | | $ | 537,716 | ||||||
Forward foreign currency contracts | | $ | (57,566) | (57,566) | ||||||||
Total | $ | 537,716 | $ | (57,566) | $ | 480,150 |
During the six months ended October 31, 2021, the volume of derivative activity for the Fund was as follows:
Average Market
Value |
||||
Futures contracts (to sell) | $ | 13,937,179 | ||
Forward foreign currency contracts (to buy) | 7,050,973 | |||
Forward foreign currency contracts (to sell) | 5,647,715 |
The following table presents the Funds OTC derivative assets and liabilities by counterparty net of amounts available for offset under an ISDA Master Agreement and net of the related collateral pledged (received) by the Fund as of October 31, 2021.
Counterparty |
Gross Assets
Subject to Master Agreements1 |
Gross
Liabilities Subject to Master Agreements1 |
Net Assets
(Liabilities) Subject to Master Agreements |
Collateral
Pledged (Received) |
Net
Amount2 |
|||||||||||||||
BNP Paribas SA | $ | 2,592 | | $ | 2,592 | | $ | 2,592 | ||||||||||||
Citibank N.A. | 7,410 | | 7,410 | | 7,410 | |||||||||||||||
Goldman Sachs Group Inc. | 2,782 | $ | (20,123) | (17,341) | | (17,341) | ||||||||||||||
Morgan Stanley &Co. Inc. | 144 | | 144 | | 144 | |||||||||||||||
Total | $ | 12,928 | $ | (20,123) | $ | (7,195) | | $ | (7,195) |
1 |
Absent an event of default or early termination, derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities. |
2 |
Represents the net amount receivable (payable) from (to) the counterparty in the event of default. |
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 37 |
Notes to financial statements (unaudited) (contd)
5. Tender offer
On June 22, 2020, the Funds Board of Directors (the Board) authorized (subject to certain conditions) a cash tender offer for up to 35% of the outstanding common stock (Shares) of the Fund at a price per Share equal to 99.5% of the Funds net asset value per Share as of the business day immediately following the expiration date of the tender offer. On October 19, 2020, the Fund commenced its tender offer, which expired on November 16, 2020. On November 19, 2020, the Fund announced the final results of the tender offer. A total of 25,577,060 Shares were duly tendered and not withdrawn, representing approximately 30% of the Funds outstanding Shares. The Shares accepted for tender were repurchased at a price of $7.01 equal to 99.5% of the per Share net asset value, $7.05, as of the close of the regular trading session of the New York Stock Exchange on November 17, 2020. Payment for such Shares was made on November 19, 2020. Shares that were not tendered remain outstanding.
6. Loan
The Fund has a revolving credit agreement with Pershing LLC (Credit Agreement) that allows the Fund to borrow up to an aggregate amount of $300,000,000, subject to approval by Pershing LLC, and renews daily for a 180-day term unless notice to the contrary is given to the Fund. On November 12, 2021, the Fund received notice from Pershing LLC that the Credit Agreement will terminate effective May 11, 2022, absent subsequent notice to the contrary. On May 27, 2021, the Fund amended its credit agreement with Pershing LLC. Under the amendment, effective June 20, 2021, the Fund pays interest on borrowings calculated based on the Overnight Bank Funding Rate plus applicable margin. The Overnight Bank Funding Rate means the Overnight Bank Funding Rate as reported by the New York Federal Reserve in the FR2420 Report of Selected Money Market Rates or any successor report or website. Prior to June 20, 2021, the interest on the loan was calculated at a variable rate based on the one-month LIBOR plus any applicable margin. To the extent of the borrowing outstanding, the Fund is required to maintain collateral in a special custody account at the Funds custodian on behalf of Pershing LLC. The Funds Credit Agreement contains customary covenants that, among other things, may limit the Funds ability to pay distributions in certain circumstances, incur additional debt, change its fundamental investment policies and engage in certain transactions, including mergers and consolidations, and require asset coverage ratios in addition to those required by the 1940 Act. In addition, the Credit Agreement may be subject to early termination under certain conditions and may contain other provisions that could limit the Funds ability to utilize borrowing under the agreement. Interest expense related to this loan for the six months ended October 31, 2021 was $676,828. For the six months ended October 31, 2021, the Fund had an average daily loan balance outstanding of $155,641,304 and the weighted average interest rate was 0.85%. At October 31, 2021, the Fund had $154,500,000 of borrowings outstanding.
38 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
7. Distributions subsequent to October 31, 2021
The following distributions have been declared by the Funds Board of Directors and are payable subsequent to the period end of this report:
Record Date | Payable Date | Amount | ||||||
10/22/2021 | 11/1/2021 | $ | 0.0490 | |||||
11/22/2021 | 12/1/2021 | $ | 0.0490 | |||||
12/23/2021 | 12/31/2021 | $ | 0.0490 | |||||
1/24/2022 | 2/1/2022 | $ | 0.0490 | |||||
2/18/2022 | 3/1/2022 | $ | 0.0490 |
8. Stock repurchase program
On November 16, 2015, the Fund announced that the Funds Board of Directors (the Board) had authorized the Fund to repurchase in the open market up to approximately 10% of the Funds outstanding common stock when the Funds shares are trading at a discount to net asset value. The Board has directed management of the Fund to repurchase shares of common stock at such times and in such amounts as management reasonably believes may enhance stockholder value. The Fund is under no obligation to purchase shares at any specific discount levels or in any specific amounts. During the six months October 31, 2021, the Fund did not repurchase any shares.
Since the commencement of the stock repurchase program through October 31, 2021, the Fund repurchased 1,964,984 shares or 2.28% of its common shares outstanding for a total amount of $10,774,478.
9. Transactions with affiliated company
As defined by the 1940 Act, an affiliated company is one in which the Fund owns 5% or more of the outstanding voting securities, or a company which is under common ownership or control with the Fund. The following company was considered an affiliated company for all or some portion of the six months ended October 31, 2021. The following transactions were effected in such company for the six months ended October 31, 2021.
Affiliate
Value at April 30, 2021 |
Purchased | Sold | ||||||||||||||||
Cost | Shares | Cost | Shares | |||||||||||||||
Western Asset Premier Institutional Government Reserves, Premium Shares | | $ | 80,865,159 | 80,865,159 | $ | 75,192,852 | 75,192,852 |
Western Asset High Income Fund II Inc. 2021 Semi-Annual Report | 39 |
Notes to financial statements (unaudited) (contd)
(contd) |
Realized
Gain (Loss) |
Interest
Income |
Net Increase
(Decrease) in Unrealized Appreciation (Depreciation) |
Affiliate
Value at October 31, 2021 |
||||||||
Western Asset Premier Institutional Government Reserves, Premium Shares | | $ | 430 | | $ | 5,672,307 |
10. Deferred capital losses
As of April 30, 2021, the Fund had deferred capital losses of $200,123,833, which have no expiration date, that will be available to offset future taxable capital gains.
11. Recent accounting pronouncement
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB issued ASU No. 2021-01, with further amendments to Topic 848. The amendments in the ASUs provide optional temporary accounting recognition and financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other interbank-offered based reference rates as of the end of 2021 and 2023. The ASUs are effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management has reviewed the requirements and believes the adoption of these ASUs will not have a material impact on the financial statements.
12. Other matters
The outbreak of the respiratory illness COVID-19 (commonly referred to as coronavirus) has continued to rapidly spread around the world, causing considerable uncertainty for the global economy and financial markets. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. The COVID-19 pandemic could adversely affect the value and liquidity of the Funds investments and negatively impact the Funds performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the Fund by its service providers.
* * *
The Funds investments, payment obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate, or LIBOR, which is the offered rate for short-term Eurodollar deposits between major international banks. On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, stated that it will cease the publication of (i) the overnight and one-, three-, six- and twelve-month USD LIBOR settings immediately following the LIBOR publication on Friday, June 30, 2023 and (ii) all other LIBOR settings, including the one-week and two-month USD LIBOR settings, immediately following the LIBOR publication on Friday, December 31, 2021. There remains uncertainty regarding the nature of any replacement rate and the impact of the transition from LIBOR on the Funds transactions and the financial markets generally. As such, the potential effect of a transition away from LIBOR on the Fund or the Funds investments cannot yet be determined.
40 | Western Asset High Income Fund II Inc. 2021 Semi-Annual Report |
Additional shareholder information (unaudited)
Results of annual meeting of shareholders
The Annual Meeting of Shareholders of Western Asset High Income Fund II Inc. was held on October 22, 2021 for the purpose of considering and voting upon the proposals presented at the Meeting. The following table provides information concerning the matters voted upon at the Meeting:
Election of directors
Nominees | FOR | WITHHELD | ABSTAIN | |||||||||
Paolo M. Cucchi | 40,115,180 | 1,205,999 | 669,501 | |||||||||
Nisha Kumar | 40,461,505 | 950,776 | 578,399 |
At October 31, 2021, in addition to Paolo M. Cucchi and Nisha Kumar, the other Directors of the Fund were as follows:
Robert D. Agdern
Carol L. Colman
Daniel P. Cronin
William R. Hutchinson
Eileen A. Kamerick
Jane Trust
Ratification of Selection of Independent Registered Public Accountants
To ratify the selection of PricewaterhouseCoopers LLP (PwC) as independent registered public accountants of the Fund for the fiscal year ended April 30, 2022.
FOR | AGAINST | ABSTAIN |
BROKER
NON-VOTES |
|||
41,088,836 | 499,893 | 401,945 | 6 |
Western Asset High Income Fund II Inc. | 41 |
Dividend reinvestment plan (unaudited)
Unless you elect to receive distributions in cash (i.e., opt-out), all dividends, including any capital gain dividends and return of capital distributions, on your Common Stock will be automatically reinvested by Computershare Trust Company, N.A., as agent for the stockholders (the Plan Agent), in additional shares of Common Stock under the Funds Dividend Reinvestment Plan (the Plan). You may elect not to participate in the Plan by contacting the Plan Agent. If you do not participate, you will receive all cash distributions paid by check mailed directly to you by Computershare Trust Company, N.A., as dividend paying agent.
If you participate in the Plan, the number of shares of Common Stock you will receive will be determined as follows:
(1) If the market price of the Common Stock (plus $0.03 per share commission) on the payment date (or, if the payment date is not a NYSE trading day, the immediately preceding trading day) is equal to or exceeds the net asset value per share of the Common Stock at the close of trading on the NYSE on the payment date, the Fund will issue new Common Stock at a price equal to the greater of (a) the net asset value per share at the close of trading on the NYSE on the payment date or (b) 95% of the market price per share of the Common Stock on the payment date.
(2) If the net asset value per share of the Common Stock exceeds the market price of the Common Stock (plus $0.03 per share commission) at the close of trading on the NYSE on the payment date, the Plan Agent will receive the dividend or distribution in cash and will buy Common Stock in the open market, on the NYSE or elsewhere, for your account as soon as practicable commencing on the trading day following the payment date and terminating no later than the earlier of (a) 30 days after the dividend or distribution payment date, or (b) the payment date for the next succeeding dividend or distribution to be made to the stockholders; except when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price (plus $0.03 per share commission) rises so that it equals or exceeds the net asset value per share of the Common Stock at the close of trading on the NYSE on the payment date before the Plan Agent has completed the open market purchases or (ii) if the Plan Agent is unable to invest the full amount eligible to be reinvested in open market purchases, the Plan Agent will cease purchasing Common Stock in the open market and the Fund shall issue the remaining Common Stock at a price per share equal to the greater of (a) the net asset value per share at the close of trading on the NYSE on the day prior to the issuance of shares for reinvestment or (b) 95% of the then current market price per share.
Common Stock in your account will be held by the Plan Agent in non-certificated form. Any proxy you receive will include all shares of Common Stock you have received under the Plan. You may withdraw from the Plan (i.e., opt-out) by notifying the Plan Agent in writing at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151. Such withdrawal will be effective immediately if notice is received by the Plan Agent not less than ten business days prior to any dividend or distribution record date; otherwise such withdrawal will be effective as soon as practicable after the Plan Agents investment of the most recently declared dividend or distribution on the Common Stock.
42 | Western Asset High Income Fund II Inc. |
Plan participants who sell their shares will be charged a service charge (currently $5.00 per transaction) and the Plan Agent is authorized to deduct brokerage charges actually incurred from the proceeds (currently $0.05 per share commission). There is no service charge for reinvestment of your dividends or distributions in Common Stock. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. Because all dividends and distributions will be automatically reinvested in additional shares of Common Stock, this allows you to add to your investment through dollar cost averaging, which may lower the average cost of your Common Stock over time. Dollar cost averaging is a technique for lowering the average cost per share over time if the Funds net asset value declines. While dollar cost averaging has definite advantages, it cannot assure profit or protect against loss in declining markets.
Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions. Investors will be subject to income tax on amounts reinvested under the Plan.
The Fund reserves the right to amend or terminate the Plan if, in the judgment of the Board of Directors, the change is warranted. The Plan may be terminated, amended or supplemented by the Fund upon notice in writing mailed to stockholders at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund for which the termination or amendment is to be effective. Upon any termination, you will be sent cash for any fractional share of Common Stock in your account. You may elect to notify the Plan Agent in advance of such termination to have the Plan Agent sell part or all of your Common Stock on your behalf. Additional information about the Plan and your account may be obtained from the Plan Agent at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151.
Western Asset High Income Fund II Inc. | 43 |
Western Asset
High Income Fund II Inc.
Directors
Robert D. Agdern
Carol L. Colman
Daniel P. Cronin
Paolo M. Cucchi
William R. Hutchinson
Eileen A. Kamerick
Nisha Kumar
Jane Trust
Chairman
Officers
Jane Trust
President and Chief Executive
Officer
Christopher Berarducci
Treasurer and Principal Financial Officer
Fred Jensen
Chief Compliance Officer
Jenna Bailey
Identity Theft Prevention Officer
George P. Hoyt
Secretary and Chief Legal Officer
Thomas C. Mandia
Assistant Secretary
Jeanne M. Kelly
Senior Vice President
Western Asset High Income Fund II Inc.
620 Eighth Avenue
47th Floor
New York, NY 10018
Investment manager
Legg Mason Partners Fund Advisor, LLC
Subadvisers
Western Asset Management Company, LLC
Western Asset Management Company Limited
Western Asset Management Company Pte. Ltd.
Custodian
The Bank of New York Mellon
Transfer agent
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
Independent registered public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
Legal counsel
Simpson Thacher &Bartlett LLP
900 G Street NW
Washington, DC 20001
New York Stock Exchange Symbol
HIX
Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to the Legg Mason Funds
This Privacy and Security Notice (the Privacy Notice) addresses the Legg Mason Funds privacy and data protection practices with respect to nonpublic personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds distributor, Franklin Distributors, LLC, as well as Legg Mason-sponsored closed-end funds. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited to:
|
Personal information included on applications or other forms; |
|
Account balances, transactions, and mutual fund holdings and positions; |
|
Bank account information, legal documents, and identity verification documentation; |
|
Online account access user IDs, passwords, security challenge question responses; and |
|
Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of an individuals total debt, payment history, etc.). |
How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, or with other financial institutions or affiliates for joint marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have authorized or as permitted or required by law.
The Funds may disclose information about you to:
|
Employees, agents, and affiliates on a need to know basis to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators; |
|
Service providers, including the Funds affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or processing or servicing your account with us) or otherwise perform services on the Funds behalf, including companies that may perform statistical analysis, market research and marketing services solely for the Funds; |
|
Permit access to transfer, whether in the United States or countries outside of the United States to such Funds employees, agents and affiliates and service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators; |
|
The Funds representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators; |
|
Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust. |
NOT PART OF THE SEMI-ANNUAL REPORT |
Legg Mason Funds Privacy and Security Notice (contd)
Except as otherwise permitted by applicable law, companies acting on the Funds behalf, including those outside the United States, are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to perform. The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.
Keeping You Informed of the Funds Privacy and Security Practices
The Funds will notify you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time they will notify you promptly if this privacy policy changes.
The Funds Security Practices
The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds internal data security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to them, and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary, so you can take appropriate protective steps. If you have consented to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.
In order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is incomplete, not accurate or not current, if you have questions about the Funds privacy practices, or our use of your nonpublic personal information, write the Funds using the contact information on your account statements, email the Funds by clicking on the Contact Us section of the Funds website at www.franklintempleton.com, or contact the Fund at 1-888-777-0102.
Revised April 2018
Legg Mason California Consumer Privacy Act Policy
Although much of the personal information we collect is nonpublic personal information subject to federal law, residents of California may, in certain circumstances, have additional rights under the California Consumer Privacy Act (CCPA). For example, if you are a broker,
NOT PART OF THE SEMI-ANNUAL REPORT |
Legg Mason Funds Privacy and Security Notice (contd)
dealer, agent, fiduciary, or representative acting by or on behalf of, or for, the account of any other person(s) or household, or a financial advisor, or if you have otherwise provided personal information to us separate from the relationship we have with personal investors, the provisions of this Privacy Policy apply to your personal information (as defined by the CCPA).
|
In addition to the provisions of the Legg Mason Funds Security and Privacy Notice, you may have the right to know the categories and specific pieces of personal information we have collected about you. |
|
You also have the right to request the deletion of the personal information collected or maintained by the Funds. |
If you wish to exercise any of the rights you have in respect of your personal information, you should advise the Funds by contacting them as set forth below. The rights noted above are subject to our other legal and regulatory obligations and any exemptions under the CCPA. You may designate an authorized agent to make a rights request on your behalf, subject to the identification process described below. We do not discriminate based on requests for information related to our use of your personal information, and you have the right not to receive discriminatory treatment related to the exercise of your privacy rights.
We may request information from you in order to verify your identity or authority in making such a request. If you have appointed an authorized agent to make a request on your behalf, or you are an authorized agent making such a request (such as a power of attorney or other written permission), this process may include providing a password/passcode, a copy of government issued identification, affidavit or other applicable documentation, i.e. written permission. We may require you to verify your identity directly even when using an authorized agent, unless a power of attorney has been provided. We reserve the right to deny a request submitted by an agent if suitable and appropriate proof is not provided.
For the 12-month period prior to the date of this Privacy Policy, the Legg Mason Funds have not sold any of your personal information; nor do we have any plans to do so in the future.
Contact Information
Address: Data Privacy Officer, 100 International Dr., Baltimore, MD 21202
Email: DataProtectionOfficer@franklintempleton.com
Phone: 1-800-396-4748
Revised October 2020
NOT PART OF THE SEMI-ANNUAL REPORT |
Western Asset High Income Fund II Inc.
Western Asset High Income Fund II Inc.
620 Eighth Avenue
47th Floor
New York, NY 10018
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase, at market prices, shares of its stock.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Funds Forms N-PORT are available on the SECs website at www.sec.gov.To obtain information on Form N-PORT, shareholders can call the Fund at 1-888-777-0102.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling 1-888-777-0102, (2) at www.franklintempleton.com and (3) on the SECs website at www.sec.gov.
This report is transmitted to the shareholders of Western Asset High Income Fund II Inc. for their information. This is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
WAS0022 12/21 SR21-4303
ITEM 2. |
CODE OF ETHICS. |
Not applicable.
ITEM 3. |
AUDIT COMMITTEE FINANCIAL EXPERT. |
Not applicable.
ITEM 4. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Not applicable.
ITEM 5. |
AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
ITEM 6. |
SCHEDULE OF INVESTMENTS. |
Included herein under Item 1.
ITEM 7. |
DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 8. |
INVESTMENT PROFESSIONALS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 9. |
PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
ITEM 10. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Not applicable.
ITEM 11. |
CONTROLS AND PROCEDURES. |
(a) |
The registrants principal executive officer and principal financial officer have concluded that the registrants disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the 1940 Act)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934. |
(b) |
There were no changes in the registrants internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are likely to materially affect the registrants internal control over financial reporting. |
ITEM 12. |
DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 13. |
EXHIBITS. |
(a) (1) Not applicable.
Exhibit 99.CODE ETH
(a) (2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.CERT
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.906CERT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.
Western Asset High Income Fund II Inc.
By: |
/s/ Jane Trust |
|
Jane Trust | ||
Chief Executive Officer | ||
Date: | December 27, 2021 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: |
/s/ Jane Trust |
|
Jane Trust | ||
Chief Executive Officer | ||
Date: | December 27, 2021 | |
By: |
/s/Christopher Berarducci |
|
Christopher Berarducci | ||
Principal Financial Officer | ||
Date: | December 27, 2021 |
CERTIFICATIONS PURSUANT TO SECTION 302
EX-99.CERT
CERTIFICATIONS
I, Jane Trust, certify that:
1. |
I have reviewed this report on Form N-CSR of Western Asset High Income Fund II Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officers and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: December 27, 2021 |
/s/ Jane Trust |
|||
Jane Trust | ||||
Chief Executive Officer |
CERTIFICATIONS
I, Christopher Berarducci, certify that:
1. |
I have reviewed this report on Form N-CSR of Western Asset High Income Fund II Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial information included in this report, and the financial statements on which the financial information is based, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officers and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: December 27, 2021 |
/s/ Christopher Berarducci |
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Christopher Berarducci | ||||
Principal Financial Officer |
CERTIFICATIONS PURSUANT TO SECTION 906
EX-99.906CERT
CERTIFICATION
Jane Trust, Chief Executive Officer, and Christopher Berarducci, Principal Financial Officer of Western Asset High Income Fund II Inc. (the Registrant), each certify to the best of their knowledge that:
1. The Registrants periodic report on Form N-CSR for the period ended October 31, 2021 (the Form N-CSR) fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Chief Executive Officer | Principal Financial Officer | |||||||
Western Asset High Income Fund II Inc. | Western Asset High Income Fund II Inc. | |||||||
/s/ Jane Trust |
/s/ Christopher Berarducci |
|||||||
Jane Trust | Christopher Berarducci | |||||||
Date: December 27, 2021 | Date: December 27, 2021 |
This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.